Merchant Cash Advance Repayment Methods
Businesses looking to improve their cash flow can take will find it easy to do by applying for a merchant cash advance. This financial tool lets businesses with strong credit and debit card sales sell projected credit and debit card sales for immediate cash. It is a very good alternative to business loans.
The best feature of merchant cash advance is repayment flexibility. Unlike business loans, businesses do not have to pay a fixed amount on specified dates. Repayment of a merchant cash advance is designed such that the required payment is dependent on credit or debit card sales. This gives business owners great flexibility in terms of repayment because if the business experiences a slow cycle the payments can adjust downward.
A merchant cash advance generally has three repayment methods: (a) split withholding, (b) lock box, and (c) ACH withholding.
The first method is split withholding. Split withholding is usually the most preferred repayment method because the collection is done electronically and seamlessly. Split withholding is when collection is done via the credit card processing company by automatically splitting the credit card sales between the business and the merchant cash advance provider. The percentage that will be paid to the provider is agreed upon beforehand.
The second method is the Lock Box or Bank Account Withholding method. In this repayment method, the credit card sales or revenue credited to a business bank account is split where a portion is forwarded automatically to the lender and the balance is sent to the business owner. This method is the least advantageous for the business because there is a one-day delay in receiving the funds from credit card sales. This repayment method is longer and more complicated than split withholding, it is also the least preferred method of business owners.
The third and last repayment method is called ACH Withholding or better said as ACH Withdrawal. ACH stands for automatic clearing house. In this repayment method, the merchant cash advance provider receives the credit card processing information and directly deducts a pre-agreed portion from a checking account via ACH. These are the three different types of methods to pay off a merchant cash advance.
A merchant cash advance provides critical capital to business owners and is a very useful financial tool that helps a business improve cash flow and liquidity. There are very flexible repayment methods which make it more attractive than business loans and a cash advanced can help any short term requirements for business financing.