What it measures
ADB answers a simple question: on a typical day, how much cash is sitting in the account? A merchant with $90,000 in monthly deposits and a $2,000 ADB spends money as fast as it arrives. A fixed daily debit has very little room to clear.
Worked example
A café's September statement (30 days) has these end-of-day balances. On days with no activity, the last balance carries forward.
| Days | Number of days | End-of-day balance | Balance x days |
|---|---|---|---|
| Sep 1 to 10 | 10 | $12,000 | $120,000 |
| Sep 11 to 15 | 5 | $4,500 | $22,500 |
| Sep 16 to 20 | 5 | -$800 | -$4,000 |
| Sep 21 to 30 | 10 | $9,300 | $93,000 |
| Total | 30 | $231,500 |
ADB = 231,500 / 30 = 7,716.67 ending balance = 9,300 negative days = 5
The ADB is about $7,717. The ending balance of $9,300 looks better, and it hides five days below zero in the middle of the month. That is why underwriters weigh ADB over ending balance: the end of the month is one day, and a merchant (or a well-timed customer payment) can make one day look good.
Check the bank's own figure
Many statements print an average balance. Some banks compute it over business days or over collected balances, which gives a different number. Use it as a check, and say which method you used.
Reading it across months
One month of ADB is a data point; three or four are a story. Suppose the café's ADB was $11,200 in July, $9,400 in August and $7,717 in September while deposits held steady. Revenue is fine, but the cushion is shrinking by about $1,700 a month. The usual causes are a new payment (often an advance taken in July), rising costs or owner draws. Find which before you submit.
The opposite pattern helps: a rising ADB on flat deposits means the merchant is keeping more cash, which supports a larger payment. Seasonal businesses swing; compare against the same months last year if the merchant has the statements.
Why it matters for payment affordability
Holdback tells you what share of revenue the payments take over a month. ADB tells you whether the account can absorb the daily debits between deposits. Funders look at both, and some set a minimum ADB either as a dollar figure or as a multiple of the proposed daily payment. Each funder chooses its own test.
proposed daily payment = 450 monthly payments = 450 x 21 business days = 9,450 ADB / daily payment = 7,717 / 450 = about 17 payments of cushion
Seventeen payments of cushion sounds comfortable until you remember the five negative days. The average hides the dip, which is why NSFs and negative days are always read next to ADB. See NSFs, overdrafts and negative days.
How the CRM helps
In Ferrylend, every deal has a Bank statements tab with a monthly grid per account: Total deposits, True revenue, Number of deposits, Avg daily balance, NSFs, Negative days, MCA debits and Ending balance. The figures are typed in from the statements today; AI parsing of statement PDFs and bank connect are Coming soon. Enter the Avg daily balance you computed for each month, and the summary averages it across the lookback.
Lender criteria can include a minimum ADB, and lender matching checks it. The offer calculator shows the daily or weekly payment to compare against the cushion.
Questions
Is average daily balance the same as average ending balance?
No. Average daily balance averages every day's end-of-day balance in the month. The ending balance is a single day, the last day of the month, which can be high or low by chance or by timing a deposit.
Do negative balances count when calculating ADB?
Yes. Days that end below zero go into the sum as negative numbers. Treating them as zero or skipping them makes the ADB look higher than it is.
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Related lessons
- Reading bank statementsNSFs, overdrafts and negative daysHow to count NSFs, overdraft fees and negative days, why the newest month counts most, and how to read a trend before you pick which funders to send to.
- Reading bank statementsWhat underwriters look for in business bank statementsFunders ask for three to four months of statements plus month-to-date. What each figure on those statements tells an underwriter, and what to check first.
- Merchant cash advance 101Remittance: daily, weekly, split and lockboxHow merchants pay back an MCA: fixed daily or weekly ACH, percentage holdback by split funding or lockbox, and reconciliation of fixed payments.
- Underwriting and analysisStacking and payment burdenMeasure how much of a merchant's revenue already goes to advances, set your affordability lines in settings, and read the warnings the CRM raises.