The Financing Role of Factoring in China Context

Abstract

Most enterprises in China face a severe challenge of financing, but have a large amount of receivables at the same time, trapped in a “receivable-payable double high” situation. Traditional factoring is the most advantageous solution in comparison with other policies in terms of management effect, but need to be remodeled to adjust to the particular context of China. The circulation of receivable creditor’s right (CRCR) is an innovative financing mode converting enterprises’ receivables into liquid assets, with pilot projects launched in Hefei and Tianjin City in China. Through CRCR, enterprises’ financing needs can be immediately satisfied by transferring a certificate to any other enterprises for cash. CRCR can also address the debt chain problem prevalent in China and improve the trading efficiency by transferring certificates directly through the supply chain. Going forward, there is a great need to develop pricing mechanism, appraisal system, and safety precaution for this circulation mode.
Key words: Factoring; Double high problem; Circulation of receivable creditor’s right (CRCR); Debt chain