On supply chain cash flow risks

  • Authors:
  • Chih-Yang Tsai

  • Affiliations:
  • School of Business, State University of New York at New Paltz, New Paltz, NY 12561, USA

  • Venue:
  • Decision Support Systems
  • Year:
  • 2008

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Abstract

This study models the supply chain related cash flow risks for a business entity measured by the standard deviations of cash inflows, outflows, and netflows of each period in a planning horizon. The goal is to provide an insightful look on how common practices that intend to improve the Cash Conversion Cycle (CCC), e.g., offering early payment discounts, may contribute to cash flow risks. We show the benefits and recommend the best policy of using Asset-Backed Securities (ABS) to finance accounts receivable as a means to shorten the CCC and lower the cash inflow risk. It is particularly helpful to small vendors having tight cash reserves and high financing costs.