Industry Insights | Supply Chain Bill Platforms Help SMBs Alleviate Financing Difficulties and Create a Trillion-Dollar Market

A high proportion of accounts receivable is one of the biggest reasons for the current development difficulties of small, medium, and micro enterprises. In recent years, with the slowdown in economic growth and the impact of the COVID-19 pandemic on the economy and society, market competition has intensified. Many small, medium, and micro enterprises often adopt the 'credit sales' model to enhance their competitiveness and expand their business in order to attract customers.

At the same time, larger-scale and more competitive core enterprises usually hold an advantageous position in the supply chain, while upstream and downstream small and medium-sized enterprises are at a disadvantage during negotiation and bargaining. Therefore, large enterprises often default on accounts owed by their upstream and downstream small and micro enterprises, leading to a rapid growth rate in accounts receivable among enterprises. Data from the National Bureau of Statistics shows that from January to November 2021, industrial enterprises above designated size had accounts receivable of 1.954 billion yuan, a year-on-year increase of 11.6%.

To solve the problem of accounts receivable among enterprises, accounts receivable bill products with payment, financing, and credit functions have emerged as financial tools that fit the characteristics of the supply chain and small, medium, and micro enterprises, as well as tools for financial institutions' capital transactions and asset-liability management.The paperization of accounts receivable means replacing accounts receivable with invoices. This can transform an enterprise's intangible commercial credit into tangible one, thereby revitalizing the accounts receivable of small, medium, and micro enterprises and improving their capital turnover efficiency.

As one of the important measures to promote the paperization of accounts receivable, the supply chain bill platform developed and built by the Shanghai Bill Exchange (hereinafter referred to as 'the Exchange') was officially launched in operation in 2020, and the new generation bill business system was recently put into production and launched.

The new system will carry out all lifecycle businesses related to bills, forming an integrated front-and-back, multi-pronged risk control system. It has innovatively realized the splitability of bills, supporting the drawer from issuing bill bundles composed of standard amount (minimum unit is 0.01 yuan) bills. When handling businesses such as bill endorsement, discounting, guarantee, and pledge, the holder can subcontract and transfer the bill bundles according to actual business needs based on the actual payment amount, providing better services for enterprises.

• The traditional accounts receivable financing model has low liquidity.
  

The supply chain finance ecosystem is long and complex, with large enterprises often having intricate trade chains that can easily lead to serious issues such as accounts receivable and triangular debts. Traditional accounts receivable financing models can only meet the financing needs of suppliers at the upstream level of core enterprises, making it difficult to fully satisfy the financing needs of suppliers two to N levels upstream. The main reason is that the credit risk of these entities is difficult to assess, and traditional credit voucher operation methods are limited in many ways. Traditional accounts receivable financing models have a small coverage area and low liquidity, usually unable to cover suppliers located upstream of the industrial chain. Supply chain bills can address these pain points by circulating among multiple levels of suppliers, which also leads to a higher acceptance rate from suppliers.

• Traditional bills cannot be split or transferred, leading to pain points such as mismatches between the amount held and the amount paid.

In financial processing, using accounts receivable as a settlement tool poses significant risks. Traditional bills cannot be split and transferred, which can lead to mismatches between the amount held and the payment amount. In scenarios with multi-level payments, enterprises can only perform similar bill pool operations: exchanging large bills for small ones, reissuing the required amount, and paying handling fees, which further increases the financial costs of enterprises. With the support of the new generation of bill systems, bill splitting has been realized. Enterprises can endorse and transfer bills for any amount without paying additional fees, greatly improving the flexibility of bill use and accelerating the turnover of enterprise funds.

• Small, medium and micro enterprises lack credit and asset certificates, making financing difficult.

Although small, medium and micro enterprises have accumulated a large amount of accounts receivable that urgently need to be revitalized with funds, banks find it difficult to handle transactions involving smaller amounts, larger numbers, and complex relationships. In addition, the lack of collateral and insufficient credit are major reasons for the financing difficulties of small and medium-sized enterprises. Even if they can obtain loans from banks through collateral or guarantees, they often have to go through complex procedures and processes, and also have to pay for costs such as guarantee and mortgage asset valuation, increasing financing costs and difficulty. However, electronic bills issued through supply chain service platforms can enable the credit endorsement of core enterprises to penetrate to small and medium-sized enterprises at the end of the industrial chain, achieving precise drip irrigation.

• What is a supply chain invoice platform?

The supply chain bill platform relies on the ECDS electronic commercial draft system. By connecting with various supply chain finance platforms, it provides enterprises with functions such as the issuance, acceptance, endorsement, maturity processing, and information services of electronic commercial drafts.

• What is a supply chain invoice?

Electronic commercial bills issued through the supply chain bill platform are referred to as supply chain bills. When receivables and payables arise between supply chain enterprises, they can be directly issued through the supply chain bill platform. Supply chain bills can be transferred among enterprises and financed through discounting or standardized bills.

• How can enterprises obtain financing and monetize through supply chain bills?

In the context of real trade, supply chain finance platforms certified and authorized by the Shanghai Bill Exchange - Supply Chain Bill Platform serve as core enterprises to issue invoices. They provide credit limits and pay them to multi-level suppliers. Suppliers can split, endorse, transfer, and finance their invoices on the supply chain finance platform. Upon maturity, core enterprises redeem the invoices as scheduled.

In recent years, the state has successively adopted relevant policies to encourage the use of innovative tools and develop supply chain finance through commercial bills, vigorously promoting the paperization of accounts receivable. Continuous favorable policies have further promoted the development of the supply chain bill industry.

Policy Name: "Opinions on Regulating and Developing Supply Chain Finance to Support the Stable Circulation, Optimization, and Upgrading of the Supply Chain Industry Chain"

Policy Interpretation:To enhance the standardization and transparency of accounts receivable, financial institutions are supported in connecting with supply chain bill platforms recognized by the People's Bank of China. Core enterprises are encouraged to issue supply chain bills. Banks are encouraged to provide more convenient financing such as discounting and pledging for supply chain bills. Small, medium and micro enterprises are supported in financing through standardized bills from the bond market, thereby improving the efficiency of commercial bill issuance, circulation and financing.

Policy Name: 'Notice on the Allocation of the 2018 Special Budget for the Development of Inclusive Finance'

Policy Interpretation:A special fund of 10 billion yuan has been allocated for the development of inclusive finance in 2018. The special fund for inclusive finance development follows the principles of benefiting people's livelihoods, ensuring basic needs, focusing on key areas, and sustainability. Based on market-oriented operations, it comprehensively uses methods such as business rewards, cost subsidies, loan interest subsidies, and rewarding instead of subsidizing to guide local people's governments at all levels and financial institutions to support inclusive finance development with social funds and compensate for market failures.

Policy Name: 'Administrative Measures for Acceptance, Discounting and Rediscounting of Commercial Bills (Draft for Soliciting Opinions)'

Policy Interpretation:The draft for soliciting opinions on new bill regulations proposes that it is necessary to standardize the acceptance, discounting, and rediscounting of commercial bills, establish and improve the bill acceptance business management system and internal control system, strengthen qualification management, establish risk control mechanisms, and protect the rights and interests of small and medium-sized enterprises.

Policy Name: 'Notice of the General Office of the China Banking and Insurance Regulatory Commission on Further Strengthening Financial Support for the Development of Small and Micro Enterprises in 2022'

Policy Interpretation:The China Banking and Insurance Regulatory Commission (CBIRC) has introduced further policies to strengthen financial support for small and micro enterprises, to facilitate cooperation between platforms and banks, and to further expand the advantage in the capital side.

The supply chain finance platform aims to provide financing financial services centered around core enterprises, based on actual trade backgrounds, for upstream and downstream businesses within the supply chain chain. It seeks to improve operational efficiency and save costs.

• core enterprise

Ø  Upgraded and optimized supply chain management:The supply chain finance platform provides assurance for maintaining the stability of the entire supply chain, supports financing for suppliers at all levels within the industrial chain, effectively enhances the core enterprise's control over suppliers at all levels in the industrial chain, and creates a healthy industrial ecosystem for the core enterprise.

Ø  Enhance financing capabilities:Reduce the financing costs of core enterprise supply chain finance, increase the financing amount, and meet the demand for additional funds.

• Small, medium and micro enterprises

Ø  Enhance financing credit:The lack of credit for small, medium and micro enterprises is a major reason for financing difficulties. Supply chain finance platforms can help them radiate the credit resources of large core enterprises to small, medium and micro enterprises, thereby enhancing their financing credit.

Ø  Simplify operations and provide one-stop services:Supply chain finance platforms can help small, medium and micro enterprises simplify cumbersome operations, lower the threshold for business processing, effectively raise funds from financial institutions such as banks, and 'solve for one' the problems of financing difficulties and high costs for small, medium and micro enterprise holding invoices.

Ø > Empowered by technology, improving financing efficiency:Provides integrated technology services such as OCR recognition, e-signing, and invoice verification for small, medium, and micro enterprises, significantly improving the service efficiency of e-commercial invoice financing compared to traditional offline services and enhancing the financing experience.

• financial institutions

Ø  Accessing Customers:Through specialized teams and customer networks, it helps financial institutions collect high-quality credit customers in batches, reducing marketing and operational costs.

Ø  Enhance operational capabilities:By operating online throughout the entire pre-loan, in-loan, and post-loan process, operational costs and labor input are reduced, and the service efficiency of financial institutions is improved; it also assists in risk control by identifying and managing credit risks and compliance risks.

• Commercial paper circle

Ø  Company Introduction:The company focuses on supply chain financial assets represented by commercial bills. By utilizing digital and technological means, it extensively connects with funds from mainstream financial institutions such as banks, trusts, securities firms, and public funds. It also integrates credit resources from core enterprises such as central state-owned enterprises, state-owned enterprises, and well-known listed companies. It outputs standardized and productized bill financing products to solve the market pain points of SMEs and micro-enterprises in the upstream and downstream of the industrial chain, such as difficult financing and high financing costs. It achieves safe and efficient fund mobilization.

Analysis of the supply chain bill business model:Deeply cultivating the inclusive scenario of commercial paper, the Commercial Paper Circle utilizes digital and technological means to widely connect with funds from mainstream financial institutions such as banks, trusts, securities firms, and public funds. It also integrates credit resources from core enterprises such as central and state-owned enterprises, well-known listed companies, etc. By outputting standardized and productized paper financing products, it addresses market pain points such as difficult and expensive financing for small, medium, and micro enterprises upstream and downstream of the industrial chain, achieving safe and efficient fund mobilization.

Bill Second-Funding provides users with information technology services such as bill inquiry, discounting, and pledging. [Bill Second-Funding] is a product developed by Sina Finance through direct system connection with cooperative banks, offering online comprehensive information technology services such as direct bill discounting and pledging financing to platform customers. Holding companies can use the Sina Finance platform to initiate online inquiries with multiple banks with one click, saving time, reducing financing costs, and solving the problems of financing difficulties and high costs for small and medium-sized enterprises.