Lenders in the Merchant Cash Advance system prefer three methods of payback: Split-Funding, Automated Clearing House or ACH, and Lockbox. The choice of payback depends mostly on each individual lender and the cash flow situation of the business owner. Visit ACH vs. Lockbox to learn more about their pros and cons.
Split-Funding is the preferred method of collecting credit card receivables by many lenders. It’s the fastest and easiest way for the business owner to receive his Cash Advance, have his credit card receivables post to his account, and keep track of finances. Lenders like Split-Funding because it’s the most secure and simplest method to collect payment.
In Split-Funding, the business owner switches his processor over to the lender’s preferred Merchant Processing company. Typically, a lender can beat or at least match the merchant’s current rates. After the switch, they usually like to see that he has batched out and processed for one or two days. The business owner should also be processing a proportional amount of money as with his previous statements.
Assuming that the underwriting process is complete, the lender will either ACH or wire the money to the merchant. The business owner will simply process the credit card as usual, and batch out of his machine. The chosen Processing Company will simply ‘split’ the funding: dividing it into respective percentages before they post to the merchant’s bank account. So if you process $1,000 daily with a 20% holdback percentage with your lender; $200 will pay off the cash advance, and $800 will post in your bank account.
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