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Holdback
Also called retrieval percentage, split percentage, reserve holdback, specified percentage.
Money withheld from what a business would otherwise receive and applied to an obligation — the daily slice of card settlements or deposits in an advance, or the unadvanced portion of an invoice in factoring.
Drafted with AI assistance and checked by a person. Its factual claims were verified against the sources listed at the end, by Find Me Funders research desk.
What it means
The same word covers three mechanisms that behave differently. Which one you are looking at determines what happens when business slows down.
Merchant cash advance
The funder takes an agreed percentage of the merchant's receipts until the purchased amount is delivered. Where the split is at the card processor, the processor routes the percentage to the funder before settling the balance to the merchant; where it is at the bank, the funder debits by ACH. In its true form the amount moves with sales: a slow week remits less and the estimated term stretches. The variability is the reason the transaction is characterised as a purchase of future receivables rather than a loan, and it is the pivot on which recharacterisation litigation turns.
Invoice factoring
The factor advances part of an invoice's face value and holds back the rest as reserve. When the customer pays, the reserve is released to the seller less the factoring fee and any chargebacks. Here the holdback is not a payment mechanism at all — it is a buffer against dilution, disputes and short-pays.
Card processing
An acquirer withholds a percentage of settlements as a rolling reserve against future chargebacks, releasing each tranche after a set period.
In all three, the money is intercepted before it reaches the business, which is what makes a holdback different in kind from an invoice you can choose to pay late.
Where this one catches people
Many agreements marketed on a holdback in fact collect a fixed daily or weekly ACH that does not move with sales. The reconciliation clause is what is meant to reconnect the two — but it is usually written as a merchant right to request an adjustment, on notice, with supporting statements, within a window, at the funder's determination. It is a procedure, not a thermostat. If nobody files the request, the fixed debit continues through a month with no revenue, and the practical experience is a fixed loan payment regardless of what the contract calls it.
Worked through
Illustrative. A merchant sells $6,000 on cards on Monday with a 14% split. The processor routes $840 to the funder and settles $5,160 to the merchant. Tuesday is quiet at $1,500, so $210 goes to the funder and $1,290 to the merchant.
Under a true holdback the funder receives $1,050 across the two days and nothing is missed. Under a fixed $700 daily debit the funder takes $1,400 across the two days, and Tuesday's debit consumes nearly half the day's takings.
Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.
Where you will meet this term
Read next
Sources and checks
Every figure on this page traces to a document someone read, on a date. Where a check is past its review date it says so rather than passing as current.
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a 14% split on $6,000 Monday and $1,500 Tuesday routes $840 and $210 to the funder ($1,050 total) against $1,400 under a fixed $700 daily debit, consuming nearly half of Tuesday's takings
example6,000 x 0.14 = 840, leaving 6,000 - 840 = 5,160. 1,500 x 0.14 = 210, leaving 1,290. True holdback total = 840 + 210 = 1,050. Fixed debit total = 700 x 2 = 1,400. 700 / 1,500 = 46.7% of Tuesday's takings, i.e. nearly half.
Holdback — common questions
What does holdback mean?
Money withheld from what a business would otherwise receive and applied to an obligation — the daily slice of card settlements or deposits in an advance, or the unadvanced portion of an invoice in factoring.
Where does holdback catch people out?
Many agreements marketed on a holdback in fact collect a fixed daily or weekly ACH that does not move with sales. The reconciliation clause is what is meant to reconnect the two — but it is usually written as a merchant right to request an adjustment, on notice, with supporting statements, within a window, at the funder's determination. It is a procedure, not a thermostat. If nobody files the request, the fixed debit continues through a month with no revenue, and the practical experience is a fixed loan payment regardless of what the contract calls it.
Is holdback the same as an interest rate?
Holdback is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does holdback apply to?
Merchant Cash Advance, Invoice Financing, Revenue-Based Financing, Credit Card Processing.
Is there a worked example of holdback?
Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.
What else should I read alongside holdback?
Daily remittance, Factor rate, Holdback percentage, Reconciliation, Reserve.
Has this definition been checked?
Yes. Its claims were verified against the sources listed at the end of this page, and the reviewer is named.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.