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How Does ACH Merchant Cash Advance Work?

ach merchant cash advance

Small businesses that have managed to secure a merchant account now have services available to them that businesses that have yet to acquire a merchant account. One service that they have available is a Merchant Cash Advance, which allows them a cash advance without being forced to apply for a loan. Using an ach merchant cash advance, you can acquire money during the slow retail season and pay it back during peak season.

What exactly is a Merchant Cash Advance?

A business has the option of receiving a lump sum from a merchant cash provider, usually partnered with a credit card payment processor. This lump sum is then paid off by the provider taking a percentage of future credit and debit card transactions executed by the business. The transactions carried out on a daily basis accrue over time to pay back the lump sum.

How does my business make payments?

There are three standard payment options available for a business availaing of a merchant cash advance.

  1. Split Witholding – This is where the credit card processing company will take a cut of each credit card transaction the business carries out. Typically this percentage is 10 or 22%. The advantage of split funding is that it is integrated and effortless for both parties involved.
  2. ACH Witholding – Upon receiving credit card processing information, the provider will deduct its agreed upon percentage of each transaction directly from the business’ checking account using ACH.
  3. Lock Box/Trust Bank Account– This method is typically the least preferred payment method. Your business’ credit card sales are deposited into an account controlled by the providor where the agreed upon percentage of the business’ cut of each transaction will then be transferred via ACH or EFT to the business’ account. This will cause a one day delay in receiving the money from your sales, hence why it is the most cumbersome payment method.

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