Abstract: In this paper, the optimal operational strategies in preorder financing model of a supply chain under the bank’s risk limit are studied. The impact of the bank’s risk limit on the supplier and the retailer’s optimal decisions are analyzed. It is shown that the bank’s risk limit equals to the loan limit, and the bank’s loan limit is increasing in the retailer’s preordering quantity. There are two ways to realize the supplier’s classical optimal production quantity: one is increasing the bank’s risk limit and the other is enhancing the retailer’s preordering quantity. It is also found that the retailer has two incentives to offer preorders: one is increasing sales for himself and the other is enhancing loan limit for the supplier. These two incentives can be transformed into each other under certain conditions. Finally, a numerical study is given to demonstrate the conclusions. These results can be used as the reference of banks when designing proper preorder financing products and reference of enterprises when choosing proper banks for applying for preordering financing services.

Key words: supply chain, preorder financing, risk limit