As technology heralds the future of supply chain finance, a number of Chinese technology companies have been launching programmes to lower the financing cost for suppliers. On June 25, Tencent became the latest such company to tap into the supply chain finance space when it announced that it had completed its first transaction under its supply chain finance programme.
According to Tencent, the financing cost for suppliers will be 33% lower than the average factoring cost. The size of the programme has not been disclosed yet.
“To support the development of our suppliers and establish a long-term stable procurement ecosystem, Tencent has connected to financial institutions to provide safe, efficient and low-cost supply chain finance services,” says an official statement from Tencent.
A source told The Asset that China Merchants Bank had been appointed as the partner transaction bank in Tencent’s supply chain finance programme.
“Industry plus internet is a future trend. Everybody is watching the B2B business,” a senior banker involved in the transaction tells The Asset. “The program is still upgrading now. If everything goes well, there will be more exciting things coming out of this program.”
In late 2018, Tencent launched its first supply chain finance, blockchain and ABS platform called WeChain.
Suppliers in need of working capital upload trade documents onto WeChain. Once the documents are verified by WeChain and acknowledged by the core buyers, transaction banks will acquire the receivables from the suppliers, similar to a reverse factoring transaction. Bank and securities companies will then package the assets into ABS products and further distribute them to investors.
The factoring + ABS model has now become common among financial institutions and tech companies to improve corporate liquidity. In this type of fintech collaboration, banks normally act as the financial service providers while technology companies provide technological support.
Tencent has been investing in blockchain and its treasury system over the past few years. In August 2018, the first blockchain-based invoice was issued by a Shenzhen-based restaurant. Via WeChat, the restaurant’s customers are able to access a digital invoice and get reimbursed by corporate treasurers. Corporate treasurers and the tax authority in Shenzhen are also able to track the transactions online. The blockchain technology was backed by Tencent and Kingdee.
Besides Tencent, large e-commerce companies such as Alibaba and JD.com have set up in-house finance or factoring companies as subsidiaries to fund and support thousands of SME clients, which have a large number of receivables on their balance sheets.
The receivables market is regarded as the next battlefield for Chinese tech companies. According to the National Bureau of Statistics, as of the end of 2018, the total outstanding receivables of enterprise above designated size (Chinese firms with annual sales revenue over a certain amount) was 1.43 trillion yuan (US$210 billion), 8.6% up from 2017. Days sales outstanding was 47.4 days, 0.3 days up from 2017.