The preferred method of collecting credit card receivables is through the split funding method.  This is simply the fastest way for the merchant to receive the advance, to have his credit card receivables post in his account, and for him to keep track of his finances.   It is also the easiest and most secure method for the lender to retrieve the funds from the merchant.

In a split funding method the merchant switches over his processor to the lender’s preferred merchant processing company.  Typically, a lender can beat or at least match the merchant’s current rates.   Once the merchant has switched over they usually like to see that he has batched out and processed for one or two days and is processing a proportional amount of money to what he had been in his previous statements.

After this, assuming the underwriting processes is complete, the lender will either ACH or wire the money to the merchant.  The merchant will process credit card as usual and will batch out of his machine.  Once he batched out, the processing company will simply “split” the funding.  The funds are divided into respective percentages before they post to the merchant’s bank account.  For example if a merchant processes $1,000 daily, and has a 20% holdback percentage with his lender, then when he batches out, $200 will go to pay off the advance, and $800 will post in the  merchants account.

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In a lockbox advance, the lender creates an additional third party bank account where the merchant’s Visa/MasterCard receivables are deposited.   When the merchant batches out, the funds are deposited into the third party bank account.  This usually takes a day to post into the account.  The lender then withdraws his daily percentage, and the rest of the money is then forwarded to the merchant’s bank account and then it takes an additional day until the money posts into the account.  The drawback of this method is that it takes usually three to four days for the merchant’s Visa/MasterCard receivables to post into his bank account; however this may be a good solution for merchants who are concerned with privacy.

The Automated Clearing House (ACH) method is much simpler and quicker.  Instead of the merchant switching over his processing to the lender’s, he stays with his current processor and his Visa/MasterCard receivables are deposited into his bank account as usual.  The only difference is that the merchant gives the lender access to the merchant’s bank account online, and the lender debits every day from the bank account his percentage.  As stated, this is a much quicker process for the merchant, but he may not feel comfortable with lenders having access to their bank accounts, all though there are methods for setting up a limited access and view with most banks.

The drawback for the lender with both these methods is that he must manually log in everyday and debit the account.  As stated before, this method may not be available to merchants suffering from poor cash flow.  The merchant might have to pay an additional fee for these services.  For top lenders who specialize in ACH and Lockbox advances click here!

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