What is Credit Card Factoring ?

Credit card factoring, also called merchant cash advance, is a growing method to obtain business cash. While credit card factoring is available in a variety of businesses, the most common industry to leverage the concept is the restaurant sector. Credit card factoring offers a retail businesses the opportunity to sell their future credit card transactions. It is a reputable way for a business to receive fast cash for their credit card receivables. By working with a factoring company, the business can receive cash advances for their credit card transactions. 

Factoring Your Business’s Credit Card Receivables?

Does your business process credit card transactions monthly? If so, and you are in need of short term capital, consider factoring as an option. While credit card factoring is less common than factoring with receivables or invoices, it is still a viable financing option for businesses to consider. Understanding the concept, the advantages and the process is an important step for any business seeking capital to take.

Business Requirements

There are generally some criteria that the business must meet in order to utilize credit card factoring as a financing strategy. One of the first things that is a requirement is the minimum amount of credit card processing per month; typically this amount is some where between $3,000 and $7,000 per month. Also, many credit card factoring companies will also want to review a history of credit card transactions to see a viable trend and will prefer to work with established businesses, not businesses that have only been operating for a year or less. Also, businesses that are operated in the home are generally not eligible for credit card factoring.

Advantages of Credit Card Factoring

There are a variety of reasons as to why a business would want to leverage this financing option, including:

• The business can utilize the funds from the transaction for whatever purposes they desire. 
• The strategy is virtually available to any business type and any business that accepts credit card payments.
• It is a short term loan program, paid back quickly through standard credit card payments that the business receives.
• Businesses don’t have to place collateral in order to receive the financing.
• Quicker payment receipt for credit card transactions, allowing the business to pay for invoices, payroll or other expenditures quicker than waiting for the merchant services payment as well as to be advanced an amount based on the typical credit card activity for the business.
• This financing strategy is invisible to customers.
• A business or personal credit score is not often required as the loan is based upon the average credit card transactions for the business.
• It is a vital cash management tool for small businesses.
• Businesses have the opportunity to borrow as much as $300,000 per location from this strategy.

Credit Card Factoring - The Process

If your business is ready to evaluate credit card factoring, the first step is to pull data from your merchant services account. You will want to review at least 3-6 months of your business’s credit card activity. Look for patterns and look for the averages. Once you have this information readily available, you will need to search for a credit card factoring company. While there are a number of factoring companies available, they don’t all specifically work with credit card factoring.

As you create a list of possible companies to work with, be sure to have a list of questions to ask each one. Be sure to ask each company which credit card companies they will factor, what percentage they offer up front and if there are any restrictions. Look for the fees that are charged per transaction, determine the amount of time that it will take to fund once you have submitted to them your company’s information, look for and read past customer reviews, read the fine print of the contract and request to speak with someone directly. You will be able to select the company that offers the pricing, turn around and services that your business needs.

Once you have selected the company that you are going to work with, most credit card factoring companies will actually begin to manage your credit card processing systems to ensure that they are paid back. What this means is that the money coming into your business via credit cards will go to pay back the factoring company directly as they collect on their advance. 

If your business is seeking short term capital, consider credit card factoring to leverage the assets that you already have. By doing so, you will be able to quickly access the much needed cash flow for your business without going through the hassles of traditional financing.

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