From combating inflationary pressures to mitigating geopolitical risk, the need for liquidity and working capital in today’s economy is critical to business stability. One way to unlock working capital for “as a service” (e.g., SaaS, PaaS) providers is through monetizing contracts wherein recurring revenue is often trapped. Contract monetization, a subset of Receivables Finance, is a solution geared toward companies providing subscription-based or “as a service” product models, most notably but not exclusively in subscription arrangements, intellectual property licensing and cloud space. Companies offering services billed on a contracted, recurring basis now have the ability to monetize those contracts and free up working capital trapped in future receivables.
How contract monetization works
In short, our firm monetizes a portfolio of contracts to provide you upfront funding and allow your customers to pay over time. Depending on the structure of the customer’s requested payment, we can tailor a specific solution to fit your needs while providing sales support to help you implement, onboard, and service your customers.
Monetizing contracts provides solutions to your customer challenges
Four of the most common challenges “as a service” organizations currently face are:
Contract Monetization to Unlock Working Capital | J.P. Morgan
Customer IT budget constraints which jeopardize contract signing
Customer reluctancy to proceed with implementation of new software or service due to implementation costs and/or consulting fees
Hesitancy to transition to a new system while still paying for a legacy system, resulting in double payment
Customers requiring fixed billing amounts to ensure simplified purchase order and payment of consumption invoices
We have solutions for all of these common customer constraints. If your customer lacks the current budget to implement a new software system, our contract monetization team can develop a plan to monetize your customer’s existing contract, providing advanced funds which allow the customer to “buy now” and “pay later” when the budget renews in the following fiscal year.
If you encounter customers that are reluctant to execute a deal due to upfront costs associated with implementation, we can assist in closing the deal by structuring it to allow your customers to pay after their launch date.
If your customers fear double payment while transitioning from legacy systems to new systems, we can assist you in restructuring payments, allowing for the cost of the double payment to be dispersed in installments over time.
For your customers who require fixed purchase orders, we can work with you to structure fixed payment amounts, permitting payment on a quarterly/yearly basis vs. paying different consumption amounts month-to-month.
Our firm’s contract monetization provides solutions to “as a service” client problems, as well as advisory services that help guide you through the deal-making and sales process to win new business and optimize working capital.
The benefits of contract monetization
-
Sales enablement
Improve sales by adapting the contract cash flow to meet your customers’ budget needs. Our firm then monetize the contract to you, leading to increased sales and revenues
-
De-risk
Help you reduce your exposure to credit risk
-
Accelerate cash flow and improve working capital
Pull deals forward by allowing your customers to buy now and, pay later via extended payment terms, while funding you upfront providing a tool for a more predictable cash inflow, helping to improve your ratios and optimize working capital
-
Simplify procurement
Streamline payment processes by allowing your customers to pay fixed amounts on a quarterly/yearly basis vs. paying different consumption amounts month-to-month
-
Lessen the budgetary burden
Provide your customers a deferred cash flow solution to move from legacy products to new products by minimizing upfront expenses while paying for the project over its useful life
Monetizing recurring contracts and subscriptions is a relatively new way of thinking about receivables finance – an integration of sales and financing strategy to adapt to the needs of customers without sacrificing your cash flow. Our contract monetization team is a group of experts and innovators within the financial and “as a service” space, providing insight into structuring and solutioning for your pain points to help you hedge and expand.
Supply chain ESG solution sets new standard for working capital optimization
Many sustainability frameworks, commitments and goals are made; few are realized.
Learn More
Financing the e-commerce economy
J.P. Morgan’s US$300m debt financing of Irish fintech unicorn, Wayflyer has underscored the need for flexible finance solutions to provide SMEs with immediate access to short term working capital for marketing, advertising and inventory spend.
Learn More
Tackling fraudulent activity in cross-border payments
Learn More
icon
Loading...
Deposits held in non-U.S. branches are not FDIC insured. All rights reserved. The statements herein are confidential and proprietary and not intended to be legally binding. Not all products and services are available in all geographical areas. Visit jpmorgan.com/disclosures/payments for further disclosures and disclaimers related to this content.
