HONG KONG – (ACN Newswire) – According to an article published on Gelonghui on 16 May, 2018, commercial factoring is the most efficient financing channel for the development of SMEs which is regarded as an important driving force for the future growth of China’s economy. At present, commercial factoring business is mainly based on offline acquisition channel. However, the combination of both online and offline customer acquisition will be the future trend. This is especially true for SMEs, whose small and fragmented financing services can be more efficiently addressed by online channel.
Supportive policy for SME financing
SMEs are the key driving force of innovation and entrepreneurship in China. Nowadays, SMEs face a large financing gap as most of their financing needs have yet to be satisfied by traditional banking channels. On the contrary, non-bank financing channels possess more advantages and flexibility. In recent years, thanks to the supportive regulatory policies, the non-bank financing business has grown rapidly, with more diverse business models including trust, commercial factoring and financial leasing.
Among these non-bank financing channels, commercial factoring is one of the fastest growing channels. The main reason behind is that commercial factoring places emphasis on credit assessment on repayment of the buyer company, and therefore help SMEs to overcome the financing barriers due to lack of collateral and low credit rating.
What is factoring service? What can factoring service providers do?
Factoring service is a method of supply chain finance service based on accounts receivable, and its core function is to provide financing. A company may provide financing to a seller who sells accounts receivable through factoring so as to charge interest and handling fees and transfer the receivables to the company. In order to make it easier for SMEs to obtain financing at an affordable price, it is particularly important for the supply chain financing providers to ensure the authenticity of underlying transactions. To encourage supply chain financing, the Chinese government has rolled out a number of supportive policies in recent years.
Factoring assets are high-quality investment assets with relatively low risks and high returns. It is expected that various types of participants such as large financial institutions, large-scale buyer companies and independent commercial factoring providers will gradually increase their investment of the commercial factoring assets.
New economy and new model: O2O is now the dominant trend and online commercial factoring is emerging
With the development of financial technology in China, the commercial factoring industry is also increasingly dependent on digital technology. With the assistance of technology, commercial factors are capable of using online platforms for fund sourcing, and conducting big data analysis for effective risk control.
In addition, online commercial factoring also has the following advantages:
(1) Overcoming information asymmetry: Online factoring platform can be used by a large number of potential borrowers, on which they can register their funding needs. Commercial factoring can have easy access to this kind of information, therefore optimizing the source of assets and expanding asset pools.
(2) Online electronic process: The transaction data collected by the online factoring platform can be subject to centralized and automated processing in order to reduce labor costs and improve the efficiency of new financing.
(3) Market efficiency: Online factoring platform can resolve the information asymmetry between capital supply and demand and match funds with assets, thus creating an efficient market for both parties to identify the optimized risk-pricing for factoring assets.
(4) The cost of factoring is lower: Online factoring platform creates a free competitive market, enabling SME asset suppliers to maintain their bargaining power so that they can request for a fair price upon renewal of factoring contracts. At the same time, the digitalized platform can store corporate data of the SMEs, eliminating the need for duplicated submission of documents and risk assessment processes.
However, if a commercial factoring company has to establish a commercial factoring business with an O2O model, it should possess professional technical and risk control abilities. Besides, sufficient capital for market making would be also fundamental in order to improve the success rate of matching up factoring needs and enhance the activeness of the platform.
Introduction of Vteam Financial Services Group
Vteam Financial Services Group (“VTeam”), a financial technology company invested by Softbank, is a supply chain financial service platform company with strong technical ability and in-depth understanding of the factoring market. Unlike P2P platforms, VTeam is a licensed company that is qualified to engage in commercial factoring and has operated in supply chain finance business for more than 16 years.
Softbank became one of the substantial shareholders of VTeam in 2011. Since then, Softbank has provided support and resources to VTeam in its expansion in the Chinese market. As a sophisticated investor, especially in the technology, media and telecommunication sector, Softbank offers strategic guidance to the development of the technology business of VTeam, laying a foundation for the success of its business.
VTeam’s technology hub, Ju Ying Jin Lian, together with its technology-driven online platform that is connected to the hub, is the only open and independent online trading platform focusing on factoring financing among China’s top five online factoring platforms (based on the 2017 total transaction volume).
VTeam has submitted A1 prospectus to the Hong Kong Stock Exchange. Its net profit in 2017 exceeded RMB195 million. Investors who have been keeping a close eye on Softbank’s investment, or those who aspire to develop their career in the commercial factoring industry, should pay close attention to this industry leader against the backdrop of “Internet + Finance”.
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