Abstract: With the development of the internet economy, many suppliers use the internet to open up direct channels, forming a dual-channel supply chain. For a dual-channel supply chain consisted of a supplier and a retailer, facing random external demand, with the supplier limited funds and the retailer sufficient funds, the paper investigates optimal decision of supplier and retailer under two ways of external financing and internal financing from the perspective of expected utility. The results show that the retail price of the direct channel will decrease with risk aversion of supplier, the wholesale price is determined according to the degree of risk aversion between them, and it decreases with the increase of supplier′s risk aversion and increases with the increase of retailer′s risk aversion,the retail price of the traditional channel decreases with the increase of risk aversion of supplier and retailer.The supplier confronting with capital constraints gives priority to the way the retailer pay in advance, and when the supply chain is in a non-risk aversion, it is most likely to achieve a “win-win” model of unpaid internal financing, but no matter what kind of financing methods are difficult to achieve the optimal expectation without funding constraints.

Key words: capital constraint, advance payment, bank loan, dual-channel supply chain