Optimal green supply chain financing strategy: Internal collaborative financing and external investments

In green supply chains, many small manufacturers are troubled by both operating and green innovation capital constraints. Despite the importance, green supply chain finance (GSCF) is still under-explored. This study investigates two internal collaborative GSCF schemes namely the partial credit guarantees scheme (PCG) and the deferred payments with bank trade credit financing scheme (DP-with-BTCF), as well as an external investment scheme (EI), to analytically explore (i) the optimal role that the supplier should play in internal schemes (i.e., guarantor or creditor) and (ii) the preferences of the manufacturer on the internal and external schemes. First, we interestingly find that compared with the no-capital-constraint scenario, the manufacturer will reduce its green investments even with the financial assistance provided by the supplier. However, the manufacturer may order more no matter whether the supplier takes the role of guarantor or creditor as the repayment responsibility of the manufacturer is limited. Second, we counter-intuitively find that although the supplier needs to bear the whole bankruptcy risk when acting as a creditor (i.e., using DP-with-BTCF), it maybe still promising owing to the increased manufacturer ordering quantity. Third, whether the manufacturer prefers internal or external financing schemes is shown to depend on bank interests and the manufacturer’s revenue sharing ratio with external investors. Last, we explore the conditions under which the supplier and manufacturer have the same or different preferences on the financing schemes, which can derive useful insights for practitioners when designing GSCF schemes.