What is a forward-flow arrangement?
Forward-flow arrangements, often seen in finance and lending, refer to agreements where one party commits to purchasing certain assets, typically receivables or loans, on a continuous or recurring basis over a set period of time. These arrangements are commonly used in industries like fintech, asset-based lending, and credit markets.
In a forward-flow agreement, the buyer (often a fund or financial institution) regularly purchases assets (such as loan portfolios, receivables, or other financial obligations) from the seller (such as a lender, fintech company, or originator) as they are generated. The key elements of a forward-flow arrangement include:
- Ongoing Commitment: The buyer agrees to purchase assets continuously over time, rather than in a single bulk purchase.
- Pre-Set Terms: The terms of purchase (price, volume, quality of assets) are pre-defined for the duration of the contract.
- Risk Mitigation: These agreements help sellers offload risk while providing the buyer with a steady stream of assets to manage or securitize.
- Capital Flexibility: They provide the seller with predictable capital inflow, enhancing liquidity and stability.
Forward-flow arrangements are popular in sectors like credit card receivables, small business loans, and personal loans, especially in fintech or lending markets where asset generation is continuous.
