The five numbers every merchant should see
- Net cash to the merchant: the advance minus fees and any payoffs.
- Total payback: everything the merchant will remit.
- Cost in dollars: total payback minus net cash.
- Payment and frequency: the daily or weekly amount, and what share of monthly revenue it takes.
- Estimated term: how long payments run at that amount.
payback = advance x factor rate net cash = advance - fees - payoffs cost in dollars = payback - net cash monthly payments = daily payment x 21 (or weekly x 52 / 12) share of revenue = monthly payments / monthly true revenue
- Factor rateThe multiplier that sets what a merchant repays on a cash advance: advance amount times factor rate equals the total payback, usually 1.10 to 1.55.
- RTR (right to receive)RTR is the total amount of future receivables a funder buys in a merchant cash advance: the advance times the factor rate, also called the payback.
- Net fundingNet funding is the cash a merchant actually receives: the advance minus origination and other fees and minus any payoffs of existing advances.
- HoldbackHoldback is the share of a merchant's revenue that goes to repaying a cash advance, either a fixed split of card sales or the effective share taken by fixed ACH payments.
Worked example: three offers side by side
A landscaping company with $60,000 a month in true revenue and no existing positions gets three offers:
| Offer 1 | Offer 2 | Offer 3 | |
|---|---|---|---|
| Advance | $50,000 | $50,000 | $40,000 |
| Factor rate | 1.32 | 1.38 | 1.28 |
| Origination fee | 3% ($1,500) | 2% ($1,000) | None |
| Net cash | $48,500 | $49,000 | $40,000 |
| Total payback | $66,000 | $69,000 | $51,200 |
| Cost in dollars | $17,500 | $20,000 | $11,200 |
| Payments | 126 daily of $524 | 39 weekly of $1,769 | 105 daily of $488 |
| Estimated term | About 6 months | About 9 months | About 5 months |
| Monthly payments | About $11,000 | About $7,667 | About $10,240 |
| Share of revenue | 18.3% | 12.8% | 17.1% |
| Cost per $1 received | 36 cents | 41 cents | 28 cents |
Check one column: Offer 1 pays back $50,000 x 1.32 = $66,000. The fee is $1,500, so net cash is $48,500 and the cost is $66,000 minus $48,500, or $17,500. The daily payment is $66,000 / 126 = $523.81, about $11,000 a month over 21 business days, which is 18.3% of $60,000.
No offer is simply best. Offer 3 is cheapest but gives the least cash. Offer 2 has the lightest payment, which matters in a slow season, but costs the most in dollars. Offer 1 sits between them. Lay out the trade-off and let the merchant choose with the numbers in front of them.
Never misstate the cost
- Do not call a factor rate an interest rate. A 1.32 factor over six months is not "32% interest", and it is not "a 32% rate" either; it is $0.32 of cost per dollar advanced, paid over the term.
- Do not quote only the payment, or only the factor. Always pair the payment with the total payback.
- Do not leave out fees or payoffs that reduce net cash.
- Do not say "no hidden fees" unless you have read the contract.
- Where a state requires the funder to provide a cost disclosure, pass it to the merchant unchanged and do not contradict it.
Disclosures come from the funder
Several states require a standardized disclosure (some including an estimated APR) before a merchant signs. Brokers generally deliver the funder's disclosure rather than producing their own figures. See state disclosure laws and the disclosure laws guide.
How the CRM helps
In Ferrylend, Add offer on a deal takes the offer's Product and its terms: the advance, factor, fees, payoffs and payment schedule for an advance; the rate, term and amortization for a term or SBA loan; the limit and draw for a line of credit; the down payment and residual or lease factor for equipment; the advance rate and discount for factoring. The calculator works out the payment, net to the merchant, total cost and an APR estimate for each, plus the factor-rate figures and holdback against revenue for advances. Offers of different products sit side by side, and Sort offers lines them up by net to the merchant, total cost, APR estimate or monthly payment. The APR is an estimate for comparing products, not a disclosure. See the offer calculator and Record and compare offers.
Questions
Is a factor rate the same as an interest rate?
No. A factor rate is a multiplier on the advance: a $50,000 advance at 1.32 means $66,000 is paid back, so the cost is $16,000 before any fees. Because the cost is fixed and the term is often short, the annualized cost is usually much higher than the factor suggests, which is why some states require funders to disclose an estimated APR.
How do you compare MCA offers?
Put each offer's net cash, total payback, cost in dollars, payment and its share of monthly revenue, and estimated term side by side. Then weigh cost against cash received and against how much of the merchant's revenue the payment takes.
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