Corporate social responsibility incentives in supply chains under pricing authority: The role of reverse factoring

Reverse factoring is a buyer-led supply chain finance mechanism that can alleviate the financial constraints faced by small and medium-sized suppliers and improve their capacity to invest in corporate social responsibility (CSR). However, improved access to financing does not necessarily translate into CSR investment, because the supplier’s incentive also depends on the allocation of wholesale-pricing authority and its ability to retain the returns generated by CSR. We develop an analytical model of a two-tier supply chain under demand uncertainty that integrates reverse factoring, endogenous wholesale pricing, order quantity, and supplier CSR effort. We compare two pricing structures: supplier-led pricing, in which the supplier determines the wholesale price and CSR effort, and retailer-led pricing, in which the retailer sets the wholesale price before the supplier chooses CSR effort. The results show that reverse factoring reduces financing-inclusive production and CSR costs, thereby improving the financial feasibility of CSR investment. Nevertheless, positive CSR effort depends on threshold conditions involving CSR effectiveness, CSR cost, production cost, and supplier margin. Supplier-led pricing generally supports CSR investment over a wider parameter region and induces higher CSR effort because the supplier can retain a larger share of the demand-enhancing value CSR generates. Under retailer-led pricing, wholesale-price compression may offset the financing benefit and reduce or eliminate the supplier’s incentive to invest. These findings demonstrate that the sustainability impact of reverse factoring depends on its interaction with pricing authority and surplus allocation. Managers should therefore coordinate financing arrangements with wholesale-pricing policies that preserve sufficient supplier incentives while maintaining overall supply chain performance.