Contract or receivables funding is a fundraising technique where the rights to future cashflows under a contract over a fixed term are sold to the lender at a discounted rate, in return for an upfront, lump sum payment.
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Contract or receivables funding is the selling of rights to future cashflows under a contract over a fixed term at a discounted rate. In return, the local authority seeking investment gets access to working capital, converting the stream of future cashflows into a one-off lump sum
Contract or receivables funding can be beneficial to local energy projects where the upfront cost will be recouped from revenue once the project is operational. It can release a cash lump sum at the start of the contract to help fund future costs (partially or in full). It can facilitate deferred or extended payment terms, again assisting with cashflow through the lifecycle of a project. Since the lender is heavily reliant on receiving the payments due, it can usually only be used to borrow against payments from strong, creditworthy debtors. It can also be known as factoring or invoice discounting.
Accounts receivable financing
Accounts receivable financing (A/R financing) is similar to a traditional loan. A typical loan requires that the local authority present tangible assets (such as property), whereas accounts receivable financing places the local authority’s accounts receivable as collateral. Simply put, it is a type of asset-based lending which raises immediate cash against the security of invoices.
Contract financing
Contract financing is a way for local authorities to receive revenue in advance for work yet to be done in a local energy project. A legal contract binds the agreement between the local authority and the customer. The contract stipulates the milestones and payments based on overall progress in the project lifecycle and operational timescales.
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