Risk Analysis of Xinsheng Technology's Third-Party Collections Accounting for Over 15% of Revenue

Based on the information I have collected, I will now systematically analyze the potential risks associated with Xinsheng Technology’s third-party collections accounting for over 15% of its revenue.

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According to public information, Zhejiang Xinsheng Technology Co., Ltd. is a company planning to list on the Beijing Stock Exchange. The prospectus discloses that in 2024, the company’s third-party collections amounted to

, accounting for of its operating revenue[1]. Among these, payments from “third parties with cross-border foreign exchange payment capabilities” reached [1]. The company’s major customers include overseas clients such as LIBERTY from India and M. RAMZAN from Pakistan[2].

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An excessively high ratio of third-party collections first raises doubts about the authenticity of sales. According to the Shenzhen Stock Exchange GEM Review Q&A, third-party collections typically refer to situations where the payer of the sales remittance received by the issuer is not the counterparty to the economic contract[3].

• There may be cases of
  fictitious transactions
  or
  aging manipulation
• The inconsistency between the actual payer and the contract signatory may indicate no real business background
• Intermediaries need to verify whether there is “capital circularization” to inflate revenue

In accordance with the requirements of Regulatory Guidelines for Issuance - No. 5, intermediaries must focus on verifying the proportion of revenue formed by third-party collections in operating revenue[3].

• The proportion of third-party collections exceeds the 15% threshold
• It is necessary to explain whether the relevant revenue recognition complies with the provisions of Accounting Standards for Business Enterprises
• It is necessary to prove the rationality of the revenue recognition point (whether control has truly been transferred)

This is one of the core issues that regulators focus on most.

• Whether there is a related-party relationship between the issuer, its actual controllers, directors, supervisors, senior management, or other related parties and the payers of third-party collections[3]
• Whether there are interest transfer situations such as using off-balance-sheet capital circulation to form sales remittances with the issuer or related entities, or to bear costs and expenses
• Whether the entrusted payment relationship between the third-party payer and the company’s customer is true and reasonable

In accordance with review requirements, it is necessary to verify

[3].

• Involves overseas third-party payment on behalf (such as third parties with cross-border foreign exchange payment capabilities)
• It is necessary to verify the legality and compliance of cross-border capital
• It is necessary to verify whether the goods are actually exported and signed for by the end customer

An excessively high ratio of third-party collections may reflect defects in the enterprise’s internal controls:

Internal Control Link	Potential Problems
Sales Management	Inadequate customer access review
Collection Management	Formalistic payer monitoring
Financial Accounting	Insufficient basis for revenue recognition
Archive Management	Incomplete contracts and documents

• Whether there were
  disputes over the ownership of payment
  caused by third-party collections during the reporting period[3]
• The
  commercial rationality or legality and compliance
  of overseas third-party payment-on-behalf behavior is questionable
• Whether it complies with foreign exchange management regulations and anti-money laundering requirements

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In accordance with relevant regulatory documents, sponsors and reporting accountants should typically focus on the following aspects of verification[3][4]:

1. Authenticity of third-party collections
   —— Whether there are fictitious transactions or aging manipulation
2. Rationality of the third-party collection ratio
   —— Whether it matches the business model and conforms to industry characteristics
3. Commercial rationality and necessity
   —— Explain the reasons and commercial logic of third-party collections
4. Related-party relationship investigation
   —— Whether there are interest-related relationships between the payer and the issuer or its related parties
5. Completeness of the verification evidence chain
   —— Including business contracts, bank statements, customer confirmation letters, etc.

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For investors, Xinsheng Technology’s third-party collections accounting for over 15% of revenue should arouse high vigilance:

1. Reduced financial credibility
   : An excessively high third-party collection ratio increases the possibility of financial fraud
2. Questionable sustainability of performance
   : If third-party collections support a considerable proportion of revenue, its true performance foundation may be unstable
3. Regulatory risk
   : If verification is insufficient, it may affect the IPO process or subsequent regulatory penalties
4. Liquidity risk
   : If the actual payer is inconsistent with the contract counterparty, future collections may face disputes

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A third-party collection ratio exceeding 15% is a key focus in IPO reviews. According to the Shenzhen Stock Exchange GEM Initial Public Offering and Listing Review Q&A, regulators require the issuer to meet the following conditions to be recognized[3]:

• Related to its own business model, conforming to industry operating characteristics, with necessity and rationality
• The payer of third-party collections is not a related party of the issuer
• Third-party collections are consistent with related sales revenue in reconciliation and are verifiable
• Able to reasonably distinguish between different categories of third-party collections, with relevant amounts and ratios within a reasonable and controllable range

As a company planning to list on the Beijing Stock Exchange, Xinsheng Technology’s third-party collections amounting to RMB 157 million and accounting for over 15% of revenue require intermediaries to conduct sufficient verification and provide a complete evidence chain to prove the authenticity of sales and the effectiveness of internal controls. Investors should pay close attention to subsequent review inquiry responses and regulatory opinions.

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[1] Caizhongshe - Xinsheng Technology’s “Third-Party Collections” Deserve Alert as $3 Million Intent Deposit Lacks Business Support (https://m.caizhongshe.cn/news-5987944187094981712.html)

[2] Dongfang Fortune Securities Research - Review Inquiry Letter on the Application Documents for Zhejiang Xinsheng Technology Co., Ltd.'s Public Offering and Listing on the Beijing Stock Exchange (https://pdf.dfcfw.com/pdf/H2_AN202512301811316220_1.pdf)

[3] Shenzhen Stock Exchange - GEM Initial Public Offering and Listing Review Q&A (https://www.shgsec.com/20200618170839423.pdf)

[4] AllBright Law Offices - How to Identify Financial Fraud from the Cases of “Zijing Storage” and “Zeda Yisheng” (https://www.allbrightlaw.com/CN/10475/425360bc0284e5fe.aspx)