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The last couple posts covered the basics of a merchant cash advance and what to look for when choosing the right company. I wrote about checking the credibility of the company, who are the shareholders, checking references, and ensuring you’re dealing direct (as opposed to a “re-seller” or broker). I also wrote about choosing a good, hockey loving, 100% Canadian Company but that’s a personal philosophy.

The last but perhaps most important feature of a merchant advance service is to ask

How does the service provider get their money back?

All companies get repaid on a daily basis using a small percentage of credit/debit card sales. This continues every day until total advance amount (plus fees) has been recovered. It’s a great process because the repayment amount fluctuates daily with the sales trend of the business.

However, there are three very different methods that service providers use to get their money repaid. One of them should be avoided at all cost, another is pretty good if you have the right merchant processor, and the third is the easiest and least disruptive to your business.

We’ll start with the worst first.

Lockbox – if this word comes up in the initial phone conversation with your provider you should just hang up. The lockbox system of repayment requires you to open a trust account and instruct your processor (Moneris, Global etc) to divert 100% of your credit and debit card sales to this account. From there, the provider takes their share and then sends the remainder to your bank account. Not only is this a huge hassle to set up (and switch back after the advance is paid) it can tie up your money for a couple days. Avoid the lockbox.

The next system is much better but has it’s drawbacks

Split Funding – some providers have developed relationships with merchant processors that allows them to “split” your POS sales. The merchant advance company gets their small percentage of your daily sales sent directly to them from the POS processor. It’s a great system if you have the right processor. However, if the merchant advance provider doesn’t have a relationship with your existing POS provider they will require you to switch companies. This means new terminals in your store, re-training your staff, new bank accounts, and new processor contracts to negotiate – too much work.
Be sure to ask about this system – it can be very easy or very difficult.


Direct debit – this is by far the easiest and most convenient system of repayment. All you need to do is 1) set up a pre-authorized debit agreement with your bank and 2) set up your on-line reporting system with your POS provider. With this system, your merchant advance company logs on to your “read only” reporting system from your POS provider to determine yesterdays sales volume. From here they calculate their share of daily sales and automatically debit your bank account.
There are no fees to set this up – quick, easy, no new bank accounts or POS providers required.


If the answer is yes you should probably look for a different merchant advance provider

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