Definition of Ratio Trade
Ratio Trade is a financing product from Ratio that provides upfront capital to companies by advancing cash against their annual or multi-year recurring revenue contracts. It allows SaaS and subscription businesses to convert future subscription payments into immediate cash without taking on traditional debt or giving up equity.
How Ratio Trade Works
Ratio Trade operates by purchasing the rights to future receivables from subscription contracts through a True Sale structure. Ratio pays the company a large portion of the contract value upfront, and the company repays Ratio over time as its customers make their payments. In other words, the company receives cash now and pays Ratio back only when the customer pays.
Ratio Trade Explained for a General Audience
For a general audience, Ratio Trade is like getting an advance on your subscription contracts. If a software company signs a $100,000 annual contract that would normally be paid over time, Ratio Trade allows the company to receive most of that cash immediately. As the customer pays their installments, those payments go to Ratio. The company gains immediate liquidity to fund growth, while Ratio earns a fee for providing the upfront capital.
True Sale and Accounting Treatment
Ratio Trade is structured as a True Sale, meaning the contracts are legally sold to Ratio rather than financed as a loan. Because the transaction is treated as a sale of an asset rather than debt, it does not appear as traditional debt on the company’s balance sheet. This structure avoids interest payments, fixed repayment schedules, and equity dilution.
Funding Amounts and Pricing
Ratio Trade typically advances a significant percentage of the contract value upfront, often in the range of 70% to 90%, depending on factors such as contract term, customer risk, and payment schedule. Ratio applies a discount rate to the contract value, which represents the cost of capital. Longer or riskier contracts generally carry higher discounts, while shorter or lower-risk contracts receive more favorable terms.
Payment Flexibility
One of the key advantages of Ratio Trade is payment flexibility. There are no fixed monthly payments or interest obligations independent of customer payments. In many cases, companies may have no payments for an initial period if customer payments are deferred. Ratio waits to be paid until the underlying customer pays.
Use Cases for Ratio Trade
Ratio Trade is designed for companies that want to extend runway, improve cash flow, or fund growth using existing contracts. It is especially useful for businesses with multi-year contracts, annual billing, or deferred payment terms that create a gap between revenue recognition and cash collection.
Ratio Trade vs Other Financing Options
Ratio Trade competes with venture debt and revenue-based financing. Unlike venture debt, it does not involve warrants, covenants, or mandatory monthly payments. Unlike traditional revenue-based financing, payments are tied to specific contracts rather than a percentage of total revenue, meaning companies are not paying out cash before customers pay them.
Why Ratio Trade Matters in a Glossary Context
Including Ratio Trade in a glossary helps explain a core product offering and how it differs from traditional financing models. It provides clarity on how companies can unlock liquidity from recurring revenue without taking on debt or diluting ownership.
Summary
Ratio Trade enables companies to turn future recurring revenue into immediate growth capital through a True Sale of subscription contracts. By providing upfront cash, eliminating debt and dilution, and aligning repayments with customer payments, Ratio Trade offers a flexible and founder-friendly way to fund growth, extend runway, and improve liquidity.
