Why offshoring companies should get paid partly in equity?

Offshoring solves one half of a problem very well. It finds, trains, and places skilled people at a cost the client could never reach in its local market. That is a real service, and it has built a real industry.

The other half of the problem is untouched. Accessing cheaper skills does not help a client who cannot pay for skills at all yet. Most early-stage companies are not negotiating over the rate. They are trying to work out how to hire anyone at all before there is revenue coming in.

So the same conversation plays out again and again. The client wants the talent, cannot commit to a monthly cash cost, and asks for a discount instead. The offshoring company competes on cash price, and every negotiation pushes its margin down. The talent is paid at local market rate, which caps what the company can offer to attract the strongest people. And nobody in the chain has any stake in whether the client's project actually works – the engagement simply ends when the cash runs out.

Everyone in that picture is behaving rationally. The structure is what fails them.

What FlexUp changes

FlexUp is an economic model, a legal framework, and a platform that let a business pay for a contribution partly in cash and partly in a share of the value that contribution creates.

The contract between the client and the offshoring company stays a normal commercial contract. What changes is the remuneration structure. Instead of one payment obligation, the price is split into tranches with different payment priorities:

• Firm is the guaranteed base, paid in cash on its due date, unconditionally, exactly as in a classic contract.
• Flex is paid as soon as the client has cash, whether that cash comes from revenue or from a funding round.
• Credit accrues as a long-term claim on the project. It is repurchased later, through buyback resolutions, once the project can afford it.
• Tokens compensate the risk taken on the Flex and Credit portions. They represent a stake in the project's equity, carry voting rights, and entitle the holder to distributions and buyback proceeds.

The party that accepts a deferred tranche is taking a genuine risk, so FlexUp compensates it with a higher nominal amount. You accept less cash today in exchange for a larger total claim tomorrow. That is the whole mechanism.

The same logic then applies at every step of the chain. The client pays the offshoring company partly in cash and partly in deferred tranches. The offshoring company structures its talent's remuneration on the same basis, so the person actually doing the work also holds a stake in the outcome. Whether those units sit in the client's project or in the offshoring company is a design choice to settle deal by deal.

None of this has to be invented from scratch, and none of it requires the client to restructure their company. Our "pay me later" arrangement is the light version: the contracts, the tranches, the Credits and Tokens, and the monthly decisions about what gets paid all run on the FlexUp platform, without adopting the full framework.

What the client does take on is one real obligation. If people are deferring payment and carrying risk on your business, they are entitled to see how that business is doing – so the client reports its cash position and profitability to them, honestly and on a regular basis. That is the price of being paid later, and it is the whole of it.

The same placement, structured two ways

Take a senior placement at a 3x price-to-cost multiple, which is unchanged between the two scenarios. Figures are per hour, at 150 hours a month.

The classic offer

The FlexUp offer

Three things move at once, and they move in different directions for each party.

Your talent earns 25 €/hr nominal instead of 20 €/hr, a 25% rise, and holds a real stake in the work they are doing. Their cash pay stays substantial at 15 €/hr, so this is not a promise offered in place of a living. And the pay is now set against the value created rather than against the local market rate.

Your client pays 50 €/hr in cash instead of 60 €/hr, a saving of 10 €/hr at precisely the stage when cash is the binding constraint. They also get more capable and more motivated people, a supplier who is genuinely aligned rather than merely contracted, and a structure documented from day one, which makes the company easier for banks and investors to assess later.

You, the offshoring company, take 35 €/hr in cash instead of 40 €/hr, and carry 50 €/hr of nominal margin instead of 40 €/hr. You keep exactly the same 3x multiple you had before. In monthly terms, at 150 hours, your cash margin moves from 6 000 € to 5 250 € and you accrue 2 250 € of deferred claims on top.

These numbers are a setting, not a formula

Nothing in that table is fixed. Two parameters drive all of it: how much the nominal amount rises, and what share of each nominal amount is deferred rather than paid in cash.

Look at how they are set above. The talent defers 40% of their nominal, while the client defers 33%. That is a deliberate choice, and it is why your own cash margin falls by only 12.5% here, against 16.7% for the client and 25% for the talent. Move those two percentages and you decide how the cash reduction is shared out across the three parties.

The same settings work on a junior profile at a thinner multiple, with the same proportions and much smaller absolute numbers. This is not a structure that only works on fat margins.

So if working capital is your binding constraint, you are not stuck with the numbers above. You can hold your own cash margin flat and let the uplift do its work elsewhere. Which raises the obvious question.

The real prize is not the margin per hour

Should you use that dial to protect your cash margin? Sometimes, yes – if your working capital is tight, it is the responsible choice.

But if that is the first thing you reach for, you are optimising the wrong number, because holding the per-hour figure flat assumes the size of your business is fixed.

The core belief behind FlexUp is that people with skin in the game collaborate better. When the talent, the supplier, and the client all gain from the same outcome, the work goes differently: less friction, less supervision, fewer engagements that quietly die, more trust extended to the people doing the work. Alignment is not a moral argument here. It is an operational one.

Which means the interesting question is not what you make per hour, but how many hours you can bill.

Consider the difference:

• 40 €/hr of cash margin on 1 000 billable hours a month is 40 000 € a month.
• 35 €/hr of cash margin on 2 000 billable hours a month is 70 000 € a month.

On top of that second figure, you are accruing 15 €/hr of deferred claims across 2 000 hours, building a portfolio position worth 30 000 € in nominal terms every month.

So where does the extra volume come from? Three places, and none of them requires a leap of faith:

• Clients who could not have signed at all. Lowering the cash cost by a sixth does not split the existing market. It widens it, because a whole tier of pre-revenue companies moves from "cannot afford this" to "can".
• Stronger candidates, more easily. You can offer above-market total remuneration without raising your client's cash cost. In a market where the constraint on growth is usually finding good people rather than finding demand, this is the tightest bottleneck you have.
• Clients who stay. A supplier holding a stake in the client's project is a partner. The relationship stops ending the month the runway gets tight, and the same client comes back for their next hire.

And you stop competing on price. Accepting part of the payment in equity differentiates your offer while raising your upside – which is the exact opposite of what a discount does to it.

What each party has to accept

The model only works if the trade-off is stated plainly, so here it is.

The talent accepts that part of their nominal remuneration depends on the client's success, and may be paid late or not at all.

The offshoring company accepts less cash each month against a payroll it still has to fund. This is the real constraint. You need enough working capital to carry the gap, or enough placements that the portfolio effect does the carrying. Across many placements and many clients, deferred positions stop being a bet on one deal and start behaving like an asset – but that only holds at scale, and getting to scale takes funding.

The client commits part of its future value, and accepts that it now has to report its cash position and profitability to the people carrying that risk. No restructuring, but no opacity either.

None of this makes the cost disappear. It is a different allocation of risk and reward, which is a genuinely better deal for all three parties – and still a trade.

How to test it on your own business

You do not have to restructure anything to find out whether this works for you.

1. Confirm the profile: typical engagement size, hourly cost and price, client stage, and how many of your clients are cash-constrained.
2. Agree the two parameters that drive everything – the nominal uplift and the deferred share – and test them against placements you have actually done. The example above comes from an open simulation you can run on your own figures: 
   (Offshoring with FlexUp.xlsx)
3. Decide where the talent's units sit, in the client's project or in your own company, and how they vest.
4. Check the working-capital impact across the number of placements you would expect to run.
5. Put the "pay me later" contracts in place and set up the project on the FlexUp platform, along with the reporting rhythm on cash and profitability.
6. Run the model on one or two pilot placements before extending it across the portfolio.

Steps 1 and 2 are a spreadsheet and an afternoon. That is usually enough to tell you whether the rest is worth doing.

Let's talk

If you run an offshoring, staffing, or outsourcing business and your clients keep stalling on cash, this is worth half an hour of your time.

Book a call at cal.eu/flexup , or join one of our workshops at www.flexup.org/events

Further reading

• Run the numbers on your own placements – the simulation behind the example in this article: (Offshoring with FlexUp.xlsx)
• FlexUp platform and model: www.flexup.org
• Upcoming workshops: www.flexup.org/events