Legal issues regarding online receivables exchange platforms

In recent years, China has launched relevant policies in support of the development of receivables finance and supply chain finance. Several ministries and authorities have also issued regulations and rules to support development of supply chain finance business vigorously in order to develop a market environment featuring mutual trust and benefit, and coordinated development among the downstream and upstream enterprises on the supply chain.

In this context, online receivables exchange platforms arise to make good use of receivables for upstream suppliers of core enterprises and to facilitate those core enterprises in reducing costs and increasing revenues. Moreover, such platforms also attract wide attention in the market as it brings huge factoring businesses for commercial factoring companies. There are several well-developed receivables exchange platforms in the market, including Jian Dan Hui, Yun Lian Finance and CRCC Yinxin.

Online receivables exchange platform is a novel “internet + supply chain finance” platform that is based on core enterprises and puts management, transfer and financing of receivables as its core business. As a general rule, such a platform operates in the following business mode (see the illustration): firstly, the core enterprise converts the payables it owes to the upstream supplier into online electronic receivable vouchers, and it then bears the obligation of paying such a voucher when it is due; secondly, after the real trade occurs, the voucher is transferred on the platform so as to realize the flow of the receivable amounts that the voucher represents; and finally, the voucher holder can obtain funds by transferring the voucher to commercial factoring companies on the platform.

Author: Zhi Hui is an equity partner at Zhong Lun Law Firm