Predicting supply chain effectiveness through supply chain finance

Purpose Due to globalization, textile small and medium enterprises (SMEs) operations have become complex which raised the needs of risk-free financing solutions to support the SMEs’ daily processes. The purpose of this paper is to investigate the effect of supply chain (SC) finance, a risk-free financing solution, on SC effectiveness (SCE) in the context of textile SMEs by employing transaction cost (TC) approach. Design/methodology/approach The participants of the study were recruited from textile SMEs through a structured questionnaire. The proposed model and structural relationships were assessed by employing AMOS 24.0. Findings The results of this paper indicate that supply chain finance (SCF) has a significant effect on SCE. Furthermore, all proposed factors of SCF adoption have a positive and significant effect on SCF. Practical implications This study helps the SMEs executives or owners to adopt SCF as a secure financing scheme to reduce the credit TCs, optimize the firm working capital, reduce the risk of default, and improve SC effectiveness. SMEs and suppliers can build strong relationships while adopting the findings of this study. SMEs can engage the suppliers to work under strategic alliance through negotiation, collaboration, and work digitization, and extend their payment terms while providing an opportunity to the suppliers to get their payment back before a fixed time through discounting from financial institutions as needed. Originality/value The present study covered the gap related to SCF and SCE by identifying unique factors of SCF adoption which was ignored in the previous literature by employing TC approach.