Chinese firms are finding it difficult to raise cash through the sale of Accounts Receivable invoices as banks are cracking down since the revelation of fraudulent invoicing in a Chinese telecom.
The Hong Kong Standard reports that factoring – a practice by which merchants sell open invoices to banks for a discount rate to make quick cash in advance of actual payment – has fallen out of favor for all but very large and established companies, after the revelation that owner of a owner of a telecoms equipment factory had used fraudulent invoices to gain access to liquidity, an act only discovered in the wake of the man’s suicide.
According to the Standard, merchants with factories in Shenzhen are facing difficulties in factoring attempts with banks in the special economic zone. This is driving merchants to credit guarantors or usurers who often charge double-digit inflation on loans that merchants need to stay appropriately liquid.
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