The first step in deciding if a business cash advance is a good option for your business is to research providers and the services they offer. To ensure that you understand what you are researching, it helps to be familiar some of the key terms used in the industry.
Here are a few of the most important terms and concepts to get you started:
A transaction where a business takes an “advance” on future sales. Specific terms of the transaction will be determined by the provider.
Cash Advance Provider
A business that “buys” future sales from other businesses, paying with an up-front advance. Providers can be small businesses, banks, credit card companies, or other institutions.
A financial arrangement where a business “sells” unpaid invoices or accounts receivable in exchange for a cash payment. In exchange, the factoring company is assigned the right to collect on the invoice.
Factoring Service Provider
Business that provides factoring services.
The amount a factoring service provider charges for factoring services, expressed as a percentage of the purchased invoice amount.
In merchant cash advance or factoring service transactions, the amount of cash or payment given to a business in exchange for future revenues.
Daily Retrieval Rate
The repayment amount collected from daily credit card revenue that is transferred to the advance provider.
Safe Retrieval Percentage
The allowable percentage of daily sales that a provider can “safely” hold aside (without causing harm to business operations) for repayment of a cash advance.