Contract based financing

NL-Fund is founder and manager of two funds, whose purpose is to purchase IT contracts from Vendors in the (broad) IT world, thus providing them with working capital to grow.

Manufacturers, Importers and Resellers, especially in the technology and communication market – we call them ‘Vendors’ – are required by their customers to not just ‘sell’ them the product, but to offer them a service alongside the product, captured in a monthly instalment ‘all-in-one’, for a predefined tenor. By doing so the customer is able to use the product, but not own in. He avoids investing his own money into the product, since financing options are limited, but he is able to turn this into an operational expense. Also there is more convenience as the customer receives the product and the service, including uptime management, maintenance, fix and repair, there is more flexibility and easy budgeting.

This model is called ‘Managed Services’, also referred to as ‘device/product-as-a-service’. It is a globally growing trend, in which the Vendor is inevitably to participate to keep his market position. At the same time, the model puts considerable pressure on the working capital of the Vendor, since the Vendors need to cover the initial costs and investments associated with a Managed Service contract, especially purchase of the equipment and devices, installation and implementation, testing, acceptance. As working capital is limited, there is a limit to growth. But what to do if the market demand is higher and if the Vendor wants to grow accordingly?

For that reason, Vendors can choose to sell contracts to a third party, in this case a fund (SPV), who is to pay a purchase price at the start, followed by deferred payments over the tenor of the contract, relieving the pressure on working capital. The fund becomes the legal owner of the contracts - during the total tenor, but it will call upon the Vendor to provide the services to the customer. By doing so, the Vendor remains the face towards the customer, and he can continue to develop the relationship with his customer.

The fund acts as a true growth engine for ICT-Vendors. Part of this model is that the Vendor remains responsible for the debtor risk. NL-Fund has built extensive knowledge and experience in this market, and can show an excellent track record.

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