Business Application Of International Factoring As A Financing Chioce In China

Along with the business' structural reform and the economic development, small and medium-sized enterprises (SMEs) have gradually become the forefront of national economic arena. And they play a prominent role in many aspects, such as promoting economic growth of China, provision of services and providing employment. SMEs have played a tremendous role in promoting the development of our national economy. In recent years, although SMEs have developed thriftily in our country, compared with the strong demand for funds in the development, it cannot meet current needs. Due to SMEs' own weaknesses and some other factors, such as the external environment, the financing gap is the major problem that has plagued SMEs so much.International factoring is a comprehensive financial service, which is to provide business many kinds of services. The factoring company assumes the credit risk, sales ledger administration and collection for the accepted accounts and maintains all necessary records in order to collect debts purchased. Successful experience of foreign countries tell us that this new type of international trade financing mode could reduce the management cost of SMEs, improve their working capital and meet their funding needs. It can alleviate SMEs' financing difficulties and create conditions for the development of SMEs. So factoring is the ideal financing option for small sized, young, and fast growing firms.Currently, due to many factors, factoring financing hasn't been very extensively used by SMEs in China. From the merits of factoring financing, this paper first makes a comprehensive analysis in theory about the advantages and feasibilities of factoring financing application in SMEs. Then we use empirical research method to extend the analysis to find out the objective application of factoring financing using in the enterprises in our country. We focus on establishing a profile of companies that use factoring financing, based on firm's demographic characteristics such as age, industry, employees and type of legal ownership. Through the research, we find evidence that in our country firms that use factoring as a financing choice mainly are those elder large and medium-sized state-owned enterprises who have strong demand for international trade financing. This phenomenon is precisely contravened with our original intention that factoring financing is mainly used by SMEs. There are many reasons for it. Compared with those large and medium-sized state-owned enterprises, SMEs have many shortcomings. And our special finance and credit system is also a major factor that obstructs this financing mode from healthily developing. Therefore, we must make effort on the construction of SMEs themselves, government policies and regulations, social finance and credit system and many other different areas. None but this method can we provide a better environment for the development of factoring financing in China. Then we can fundamentally solve the financing difficulties of SMEs and provide enough capital for SMEs' rapid development.