What is Forward Factoring
Forward factoring is a short-term source of finance that must be repaid within 6 - 12 months.
In forward factoring, companies can pledge future contracted revenue to receive financing upfront.
Increasingly, this tactic is being used by SaaS companies. They’re taking their current monthly recurring revenue (MRR) and using it to obtain financing to increase their annual recurring revenue (ARR) hopefully.
There is a glaring risk when it comes to forward factoring. Forward factoring is a short-term source of finance that must be repaid within 12 months, so the monthly cash outflow is higher than fixed-rate term loans. Also having sold the forward contracted revenue, you forgo the cashflow benefits of this revenue.
To learn more about the potential and possible perils of forward factoring, check out What to Know about Forward Factoring....It is Debt