Sustainability‐Linked Trade Credit and Inventory Strategies in Supply Chains: An Integrated Modeling Approach

ABSTRACT Despite the growing research on sustainability, exactly how sustainability and trade credits are linked in the supply chain (SC) is still unclear. Therefore, this study aims to bridge this gap by examining how both supplier and retailer sustainability‐linked strategies and investment decisions influence trade credit terms, inventory decisions, and overall SC sustainability performance. We developed an integrated mathematical model that includes product deterioration, sustainability‐linked investments, sustainability practices, financial dynamics, and partial backlogging to evaluate how these aspects affect overall integrated SC sustainability. With the help of numerical experiments and concavity analysis, the results confirm that moderate‐to‐high sustainability investments with coordinated credit terms significantly improve both environmental and financial sustainability. The study confirms the strong influence of preservation technology and sustainability practices in minimizing product deterioration and supporting longer inventory cycles, even under stockout risk. The retailer's sustainability efforts can enhance demand, lessen waste, and lessen credit default risk, indicating higher total profit for the supplier, and trade credit terms can be a strategic tool to promote and incentivize sustainability practices. The inclusion of partial backlogging with sustainability efforts can foster SC coordination and customer service levels. Moreover, concavity analysis validates the robustness of the model, providing a reliable strategic decision‐making tool to enhance sustainability across both upstream and downstream SCs, address inventory overstocking and understocking issues, optimize trade credit contracts, and improve the overall sustainability of the SC.