How a payment processor prices a cash advance off your own volume data

The offer in your dashboard was priced from information you gave the processor by trading.

What they are reading

Settlement history by day, average ticket, transaction count, refund rate, chargeback rate, seasonality and trend. That is a more accurate picture of a card-heavy business than bank statements are, and it is already in their systems. Nothing needs to be submitted, which is why an offer can appear within seconds of a good quarter.

The amount offered generally scales with recent volume, because the repayment mechanism is that volume. Expect offers to grow after strong months and to be withdrawn or reduced after weak ones.

How repayment works

Usually a holdback: a fixed percentage of each day's card settlements is retained before the rest is paid out to you. You do not fund a debit, so there is no returned payment and no NSF fee. Slow days cost you less and busy days cost you more, and the payoff date moves accordingly.

That is genuinely gentler than a fixed daily debit against your bank account. It is also harder to interrupt, because the money never reaches you.

How it is priced

Typically as a fixed total: you receive one amount and repay a larger one, with no rate accruing over time. Two consequences follow.

First, the cost does not fall if you repay quickly. Finishing early compresses the same fee into fewer weeks, which raises the annualised cost of the money. Ask whether an early payoff discount exists, and require it in writing with the window and the reduced total stated.

Second, comparing it to a loan requires converting. Divide the total cost by the cash you actually received, then set that against a realistic number of months. See factor rate for why the headline number is not a rate.

What the holdback percentage does to the term

The holdback is the only number that sets your payoff date, and it does it in combination with a figure the funder cannot control: your volume.

At $95,000 of monthly card volume, $11,400 a month goes to the funder and the advance clears in about 3.4 months. Solving for the rate that makes those payments equal the $30,000 you received gives roughly 155% annualised.

At $60,000 of monthly volume, $7,200 a month goes across and it clears in about 5.4 months — for roughly 106% annualised.

Same product, same $9,000 of cost, same holdback. A quieter business pays less per year for the money and takes longer to be free of it; a busy one pays more per year and is finished sooner. This is the inversion that catches people: with a fixed total, strong sales make the money more expensive, not less. There is no version of this where trading well saves you anything, unless the contract contains an early payoff discount.

So when the dashboard offers you a larger advance after a strong quarter, the strong quarter is also what makes the previous one expensive.

The renewal, which is where most of the cost accumulates

The offer to renew usually arrives when you are about halfway through, and it works like this.

Across both deals you will have delivered $19,500 plus $52,000, or $71,500, against $30,000 plus $20,500, or $50,500 received. Cost: $21,000 for $50,500 of money.

The reason it costs that much is the payoff. You retired the $19,500 in full, and that figure still contained the whole of the unearned cost on the first advance — there is no principal balance to discount to, because a fixed total does not amortise. You paid the full price of money you only held for half the term, and then borrowed again.

Ask one question before accepting any renewal: what is the payoff figure today, and how much of the new advance is actually new cash? If the answer is "we'll net it out", ask for both numbers in dollars in writing. An early payoff discount, where one exists, is applied at exactly this moment and nowhere else.

The structural point

The company holding your settlements is now also your creditor. Read for:

• Offset rights over settlements and any reserve.
• Restrictions on changing processor while a balance is outstanding, and what happens to the balance if you do.
• What occurs if volume falls — whether the holdback percentage rises, a minimum payment applies, or a maturity date exists.
• Reserve interaction. If a reserve is imposed at the same time, two separate holds are taken from the same settlements.

What to ask before accepting

Total repayment in dollars. Cash delivered today after any fee. The holdback percentage. Any minimum or end date. Whether early payoff reduces the total. Whether accepting restricts where you process. Those six answers make the offer comparable to anything else on your desk, which is precisely what a one-click offer is designed to avoid.

The one that is not in the six

Ask what happens to the holdback if you add a second processor or move some volume to a different terminal. Splitting your card traffic reduces what the funder collects, and most of these agreements treat it as a breach rather than a business decision — sometimes described as diverting receipts, sometimes as a change in processing arrangements, occasionally both. The clause is short and it is usually near the covenants. Find it before you sign, not after the sales call about better rates.