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Split funding
Also called credit card split, split withholding, batch split.
Repayment taken by the card processor at settlement, which diverts an agreed share of each day's card batch to the funder before the remainder reaches the merchant's bank.
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What it means
It is the original merchant cash advance mechanism and the one that actually matches the product's legal theory: the funder receives a percentage of card receipts, so when card volume falls, the amount remitted falls with it. No debit ever bounces because nothing is being pulled from a bank account.
Three forms exist. A true split, where the processor holds back the percentage and forwards it. A lockbox or trust account arrangement, where the whole batch settles into an account controlled by or shared with the funder, which takes its share and passes on the rest. And ACH withholding, the most common today, where the full batch goes to the merchant and the funder debits a fixed amount from the bank account — which is not a split at all, despite often being described as one.
Split funding requires the processor's cooperation, which is why funders maintain relationships with processors and why some advances come bundled with a switch to a partner processor.
Where this one catches people
Changing card processors while a split is running is an event of default in essentially every one of these agreements, and it is treated as an attempt to divert the purchased receipts rather than as a routine vendor change. Merchants get talked into a processor switch by a sales rep promising lower rates, do it without checking the funding agreement, and find the advance accelerated. The same clause usually catches encouraging customers to pay by cash or check to reduce card volume.
Where you will meet this term
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Split funding — common questions
What does split funding mean?
Repayment taken by the card processor at settlement, which diverts an agreed share of each day's card batch to the funder before the remainder reaches the merchant's bank.
Where does split funding catch people out?
Changing card processors while a split is running is an event of default in essentially every one of these agreements, and it is treated as an attempt to divert the purchased receipts rather than as a routine vendor change. Merchants get talked into a processor switch by a sales rep promising lower rates, do it without checking the funding agreement, and find the advance accelerated. The same clause usually catches encouraging customers to pay by cash or check to reduce card volume.
Is split funding the same as an interest rate?
Split funding 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 split funding apply to?
Merchant Cash Advance, Credit Card Processing.
Is there a worked example of split funding?
Not on this entry. Where a term is arithmetic, the arithmetic is shown; this one is not primarily a calculation.
What else should I read alongside split funding?
ACH debit, Default, Lockbox, Specified percentage, Third-party processor.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
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.