Founder Mason Blake headshot
Cofounder & CTO
Mason Blake
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Mason is an engineering leader and entrepreneur who has been either building or starting companies for over 10 years. He was the Co-founder & CTO of UpCounsel, which exited to LinkedIn, and then led engineering for LinkedIn’s service marketplace. Ashish was an early Angel investor in UpCounsel, and the two have known each other and collaborated for over 10 years.

Ashish Srimal
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Ashish is a SaaS entrepreneur and executive who has built SaaS startups and led large SaaS businesses. He was the Co-founder & CEO of a SaaS AI startup, SmarterMe, which he successfully exited and then was an executive at Medallia, which IPO’d in 2019. Prior to that he was an executive at SAP and Cast Iron Systems. He has also been an investment advisor to several PE and VC firms.

True Sale Based Financing (TBF) and
Why Should You Care?

What is “True Sale”?

A true sale is a legal and financial term used to describe a transaction in which ownership of an asset is transferred from the original owner (the seller) to another party (the buyer). This protects the buyer’s interests by legally isolating the asset beyond the reach of the seller’s creditors (or) any bankruptcy trustees of the seller.

In the context of a contract, a true sale would mean that the ownership of the asset being sold under the contract is completely and permanently transferred to the buyer. This means that the buyer assumes all the risks and benefits associated with the asset, and the seller no longer has any rights or control over the asset. An asset in the context of a technology company, it could also mean intellectual property, accounts receivables, annual contracts, or multi-year contracts.

A true sale is often used in the context of asset-backed securities, where the underlying assets (such as loans or mortgages) are sold to a special purpose vehicle, which then issues securities backed by the cash flows from those assets. In such cases, a true sale is necessary to ensure that the assets are completely isolated from the seller's balance sheet, and the securities are not subject to any claims by the seller's creditors.

Here is PricewaterhouseCoopers' viewpoint

What is True Sale Based Financing (TBF)?

True Sale Based Financing (TBF) is an innovative way to raise growth capital without any dilution or debt.  It is similar to Revenue Based Financing (RBF) where it factors the future cash flow of the company to provide capital today.  However in True Sale Based FInancing (TBF) for Technology companies the financing company purchases specific contracts regardless of when the service or products is delivered as long as it is non-cancellable.  It has five key characteristics that makes it an attractive option in the CFO’s tool box.


Improve balance sheet and boost cash flows through direct substitution of short-term illiquid assets on the balance sheet for liquid cash. The fast-forwarded cash flows from the future are recognized in the same quarter when the True Sale transaction is consummated.


No dilution through issuance of new shares, resulting in no changes to existing shareholders’ ownership


No new liabilities on the balance sheet


Enjoy relatively lower costs of capital from alternative financing vendors offering TBF who may perceive the assets they are buying to be more risk-mitigated. Full transfer of asset’s future cash flows protects them from future claims from seller’s creditors (or) bankruptcy proceedings.


Flexibility and choice of payment terms: No need for the seller to repay until the customers pay according to their contract terms. This means that the seller has a lot of latitude to cherry-pick the contracts they want to sell —and even the specific future receipts within— based on the quantum and timing of cash flows, and the cash needs of the business over time.

Debt vs. Revenue Based Financing (RBF) vs. True Sale Based Financing (TBF)
Improve Balance sheet ( Accounting Treatment)
Direct Substitution of Assets for Cash, with immediate impact on cash flows
Quantum of Capital Available is a Function of:
Ability to Service Debt from Net Cash Flows
% of Annual Revenues / AR
Cumulative Projected Gross Cash Flows of Multi-Year Contracts
Repayment Amounts and Timing
Regular Payments are mandatory
Regular Payments or % of total cash receipts across all customers
Varies by every contract and future receipt sold. Offers a lot of flexibility and choice to seller.
Personal Guarantees
Many loan providers require personal guarantees
Some may need personal guarantees (or) collateral
No need for personal guarantees
Advantages of True Sale over Traditional Loan?

True Sale Based Financing (TBF) could be a good fit for some companies due to its inherent advantages. Some of them are listed below:


Improved balance sheet: True sale RBF allows public and private companies to substitute  a portion of their long term contracts payments, generally recorded  in AR or long term assets, from their balance sheet with instant cash. This can improve their financial ratios and make them more attractive to investors and lenders.


Flexible repayment terms: True sale RBF transactions can be structured with flexible repayment terms that are linked to the specific contracts payment schedule. . This means that the borrower can make larger payments when its cash receipts from the sold contracts are higher and smaller payments when they are lower, which can help improve the company's cash flow management. Furthermore, the timing of the payments is dictated by the payment schedule on the contract and can improve the company’s cash flow management (ex. No payments for 12 months for an annual contract)


Access to non-dilutive capital: True sale revenue based financing (RBF) allows public and private companies to access funding without having to issue new shares or dilute existing shareholders' ownership. This is particularly important for companies that may not want to dilute their ownership or that may be restricted from issuing new shares due to regulatory or other reasons.


Lower cost of capital: RBF providers typically charge a lower cost of capital compared to traditional lenders or equity investors, as they assume a portion of the risks associated with the borrower's revenue stream. This can help public companies reduce their overall cost of capital and improve their profitability.

Some exchanges like the ASX, require smaller businesses typically yet to turn a profit or achieve a critical threshold of positive operating cash flow, to submit cash flow statements to the market every three months, under Appendix 4C

ASX companies under Appendix 4C mandates can use True Sale Based Financing to convert longer term contracts with staggered cash flows into instant cash. The standard accounting treatment for True Sale makes it possible to substantially boost short-term cash flows for the quarter in which the True Sale transaction is recorded.

Overall, true sale RBF (TBF) can be a useful financing tool for companies that want to access capital without diluting ownership, reduce their cost of capital, and improve their financial flexibility and balance sheet.  However, it is important to carefully evaluate the terms and conditions of any financing option and choose the one that best meets the company's needs and objectives.

To learn more about how Ratio can help you meet Appendix 4C requirements through True Sale Based Financing (TBF), please schedule a meeting here.