A payment term defines the specific parameters governing when and how a Tranche is paid — including the priority level, due date, trigger event, interest rules, and residue handling.
In the Classic System, a Payment Term typically specifies a due date and any applicable interest rate. In the FlexUp Economic Model, Payment Terms also include a priority (Firm, Preferred, Flex, Superflex, Credit, or Token) and a risk factor that determines how many Tokens are issued to compensate the payee for accepting a flexible commitment.
The total order amount is split into one or more tranche, each having a specific payment term. Each tranche is then used to create one or more commitments, which represent the actual financial obligations.
Priority and flexible commitments
The FlexUp Economic Model introduces the concept of priority, which determines the order in which commitments are processed:
Payment terms have the following parameters:
- Priority level: determines the order in which commitments are processed, based on two Resolution Cycles:
- Monthly cycle: Firm commitments must be paid first. Then, if there is any available cash left, Preferred, Flex, then Superflex commitments are paid.
- Annual cycle: Credit and Token commitments are paid on an annual basis if there is any excess cash left after the monthly cycle.
- Due date: as in the conventional economic system, but only applies to monthly priorities. Annual priorities are paid annually based on the excess cash available.
- Interests: as in the conventional economic system, but also specify the priority of the interest payment.
- Residue handling: defines how any unpaid residue is treated if a commitment cannot be paid in full on its due date.
- Token Redemption: for flexible tranches (which carry risk, and whose risk is rewarded with tokens), specifies who can initiate a buyback request for the associated tokens:
- If enabled: both the project (token issuer) and the associate (token holder)
- If disabled: only the associate can request buybacks
Risk factor
Flexible payment terms have an associated risk factor that is calculated based on the selected properties. This factor is used to determine the discounted value of commitments, and consequently, the tokens issued to the payee (the associate) to compensate for the risk taken on the payment of this commitment by the payor (the project).
- For example, a simple credit payment term has a risk factor of 80%. This means that if the payor issues a credit of 100 €, the payee will receive tokens worth 80 € at the current token index (e.g., 16 tokens if the token index is 5 €/token). The discounted value of the credit is then 20 € (100 € - 80 €).
Local directory
You can add two types of payment terms to your local directory: