Factoring has become increasingly popular among online lenders as a tool to improve risk control, experts said.

Factoring is a financial transaction in which a business sells its accounts receivable to a third party (a factor) at a discount. The business is in its infancy in about 10 pilot cities in China.

Zhongli360.com, an Internet lending company that combines factoring business and Internet finance, has just been set up.

"Factoring can help us improve risk control," said Yang Yang, CEO of Zhongli360.com. "The uses of funds raised in an ordinary online lending platform cannot be verified, but the data are clear on our platform because factors use the money for trading activities already arranged."

Yang said the financing scale for each program on the company's platform is between 2 million yuan ($327,000) and 5 million yuan, and the amount for a single transaction will rise to more than 10 million yuan in the coming years.

"We will design products for different factors depending on their requirements and set up a risk-sharing mechanism for them," said Yang. "Combining factoring business with Internet finance can free up accounts receivable, which will promote the development of the real economy."

Wen Xiaopeng, a senior lawyer at Beijing Unicorn Law Firm, said that combining factoring business with Internet finance is innovative because it can replace the previous risk control process of using guarantees.

Wen said there are many online lenders that allow a third party, usually a small loan company with a guarantee company, to offer financing programs and do the guarantee work.

"Such platform companies rely on the development of small loan and guarantee companies and the collateral may be defective," said Wen.

Internet finance company dianrong.com has conducted factoring-related businesses. Financial investment service platform weicaifu.com is also developing factoring-related products.

As of the end of July, there were 1,283 online lending companies, and transactions by these companies are expected to reach 250 billion yuan by the end of this year, according to wangdaizhijia, a portal offering online lending information.

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