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Those in the cash flow industry know that most small businesses will need a cash infusion at some point to modernize, open new locations, purchase equipment or inventory, or buy out a partner. Unfortunately, not all businesses have the working capital or financing in place to cover these needs, and they must find the money elsewhere.
Sometimes the owners have applied for funding from traditional financing sources but have been turned down – even though they are a creditworthy business – just because of their industry classification. Or they need funds faster than these institutions can make a decision. That’s when you can recommend a little-known “hidden asset” to obtain working capital – their future credit card sales.
Here is how it works: It is similar to factoring but of a future event, a credit card sale that has not happened yet. A business owner sells a fixed amount of future credit card sales to a purchaser (the factor) at a discount in exchange for cash today, typically as much as $150,000 per location. The business then delivers the future receivables it sold to the factor via its credit card processor. Each day the company is open for business, its processor delivers a percentage of its credit card sales to the factor until it has delivered the total amount of receivables sold.
Because this kind of “factoring” arrangement involves a purchase and sale of future credit card receivables, it is not a loan product. There is no interest rate, no set repayment term, and no monthly check to write. Other benefits of this arrangement include:
High approval rates: Companies that purchase future credit card receivables can approve businesses that banks decline, highly valuing businesses like restaurants and retailers as clients, even though they are often considered “risky” by banks and other financiers.
Ease: The application can be less complicated and have fewer documentation requirements than those for traditional funding products.
Speed: Factors make approval decisions quickly. They can provide working capital in less than 14 working days. If the business is already using one of the factor’s approved credit card processors, the time can easily be reduced to 72 hours.
Flexibility: Most traditional small business loans require a fixed payment every month, without regard to cash flow. A reputable factor collects only a fixed portion of the receivables it has purchased only when the business processes credit card transactions. The factor gets paid when the merchant gets paid. If sales are seasonally trending downward, so does the amount remitted to the factor, helping the business manage its cash flow.
Fees: Reputable factors rarely impose charges like application or expedite fees. Because factors receive a specified percentage of each credit card batch and not a fixed monthly payment, there are no prepayment penalties or late fees.
Facts to consider before recommending this product:
Collection period: The factor will collect the receivables it purchased over a much shorter time period than most loans or leases – generally within one year. For some businesses, this shorter cycle is not feasible. Others prefer this time frame because it ensures that an outstanding obligation is handled quickly.
Use of proceeds:Most factors are interested in providing capital to help their customers grow and enhance their businesses. They will emphasize in their underwriting a use of proceeds consistent with that goal. This funding should be used to help businesses manage unexpected expenses, take advantage of opportunities, and build their business – not sit in a “rainy day” fund.
Provider reputation: Because this funding is relatively specialized, using an established provider with a proven track record is important. Ask how many total customers a company has served, the total dollar volume of funding provided, available funding capacity, and number of businesses that have taken multiple fundings.
Glenn Goldman is the CEO of AdvanceMe, Inc. (AMI) in Atlanta, GA, the nation’s leading provider of credit card receivable financing for small and medium-sized businesses. AMI has over 200 independent sales contractors nationwide and has served over 11,000 businesses since 1998. Glenn can be reached by e-mail at gg@AdvanceMe.com.

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