When To Confirm Competitor Payoffs?

In the Merchant Cash Advance world, paying off a competitor's advance is a somewhat common practice. On about five percent of our new clients we have to wire the funds to a competitor to buy them out so that American Finance Solutions is in first position for the credit card receivables.

The catch for our sales partners is when to make the contact with the competitor to confirm the payoff amount and payment instructions. There are advantages to calling early right when contracts are received; and waiting to just prior to funding.

When calling early, AFS risks tipping off the competitor that they are about to get bought out of a deal. If its a good, profitable client (which is most often the case) the competitor will often "instantly approve" the a renewal and offer to wire funds that day and beat our offer. Of course they can do this since on a renewal the compensation to the agent of record is much lower than the new agents upfront commission. Most of our agents prefer that we don't tip off the competition (especially for the small NY-based upstarts with less than perfect reputations) and work on getting their deal funded.

So most often we wait to the day funding to confirm the amount. Most often the competitor is a NAMAA-member and we call the NAMAA contact. (All NAMAA members have agreed to provide truthful, relevant information on clients when answering payoff questions; and its been working for the past six months with no issues that AFS is aware of). Sometimes we find out the reason that the client cannot renew is because of collections issues, fraud (altered payoff letters) or trying to get double funded on the same day by the old and the new MCA company. Of course AFS is not going to be funding clients with these situations.

Of course our sales partner is not happy, they just spun their wheels and invested much time and energy for no reward. Believe it or not, we are not happy just having wasted staff time and incurring expenses for reports, site surveys, etc. In our view though the frustration and expense lost on a few clients is worth it to not take the risk of calling early and losing the deal.

Again, though for our sales partner we cannot stress enough to know your client! Find out the funding date of their current advance and deal terms. If the contract payback amount is $50,000, they got the advance six months ago and the balance is over $30,000 there's an issue with payback. You'll end up being more productive and funding more deals!

AFS Launches Risk-Based Pricing

In the Merchant Cash Advance industry the two major factors that determine pricing for clients is the expected collection time for a contract and the associated risk with the contract. As we have all seen bad debt is the main driver behind the cost of money (and also makes or breaks many of our competitors.) For 2011 AFS has just launched a true "Risk-Based" Pricing model to be more aggressive on pricing contracts for merchants. For agents that have not submitted a deal to AFS in the past three weeks, you will be quite surprised on the outcome of your next submission.

The new pricing calculator now looks at more than just expected payback period to price a deal. Many other factors are now weighed including, time in businesses, expected contract length, seasonality, industry and twenty-two other factors. In addition, the calculator also allows for our Account Executive to provide multiple scenarios pricing very quickly, making it easier to offer multiple contract scenarios across all types of variables (withholding percentages, cost, funding amount, etc.)

The result for our clients is that merchants that show greater credit worth will now receive preferential pricing. The pricing also takes into account our clients' payment track record on repeat contracts. The goal is to keep an AFS client satisfied for the long haul and loyal.

However, the largest improvement to our agents is the ability to modify their compensation stream to achieve better pricing without affecting the total amount earned on a deal. Our Account Executives can now offer pricing options moving a portion of the upfront commission to payback residual. This will be done only upon request of the Agent to be more competitive on pricing and is a great solution (instead of having to reduce commission to get a deal done.)

Bottom line is that AFS Agents are now able to customize pricing for contracts to close more deals and build a strong portfolio of clients. For more information or better yet to take advantage of this new pricing please do not hesitate to contact your Account Executive or Ray Felts, Agent Development Manager at 800-760-5516, ext 106.

Limitations Of The Merchant Cash Advance Product

The recent slight rebound in the United States macro-economic climate has resulted in a lot of entrepreneurs seeking working capital for their businesses. As a result of this, most smart entrepreneurs have already or are in the process of analyzing the different business cash options that are open to them other than the banks which are still on lock down for small business loans. When theses business owners do Google searches they find lots of information from the hundreds of sellers on the advantages and benefits but none on some of the limitations.

At American Finance Solutions, we like to give our clients the complete picture of all the pros and cons so that a business owner can make a intelligent decision on offers. I will try to summarize the cons and limitations which can be divided into three major areas:

1. Cost - The factor rate of a merchant cash advance is much higher than a traditional SBA or business bank loan. The primary reason for the higher rates is that the funding companies are taking much more risk with low documentation, unsecured financing and compared to conventional loans. This is also one of its advantages as the due diligence or underwriting criteria allows many more business owners access to capital. The basic market forces of supply and demand still apply to MCA financing, so it pays for business owners to shop around and find a good rate with minimal out of pocket fees.

2. Qualification - This area can be broken down into two sub-sections of qualifying for an MCA outright and how much a business qualifies for in funding. As a start up, for a businesses first location you will not be able to use a merchant cash advance because there is no sales history for the funding company to base its expected collection for credit card sales. You will need a minimum of four months credit card processing history to qualify. In addition, a business needs to have some minimum level of credit card processing volume, most funding companies require $3,000 to $5,000 per month to guarantee some form of payment.

How much a business owner qualifies for can be based on several different criteria that varies for each financing company. Most reputable companies base the amount financed on a combination of total sales, acceptable remittance rates for the businesses SIC classification and overall affordability on personal/business criteria. As always, your best bet is to negotiate the best contract that minimizes the impact of payback on the businesses cash flow. We've seen too many good business owners pushed into bad contracts that take too much from a business credit card receipts and forced to close.

3. Consistency - When applying for a business cash advance give the funding company the complete story of your business so that they can create a contract customized for the volume of your credit card receipts. After the contract is funded as a financing company we expect consistent volume for expected repayment. Due to fraud by less than honest merchants, the funding companies know that if your volume drops more than ten to 15 percent that the business owner is diverting sales and violating the terms. This results in getting black listed by the industry, unpleasant phone calls for the collection departments and usually penalties and automatic ACH payments being deducted from the business' bank accounts. Make sure you read all the find print of the contract and have all questions answered directly by the funding company! At AFS we actually prefer it when a potential client asks for clarification and understands all the responsibilities of us and them. It always results in a smooth contract and happy customers that almost always repeat.

If you business is seasonal let the funding company know ahead of time. American Finance Solutions is the specialist in providing merchant cash advances for seasonal business. We usually request 12 months of your previous credit card processing statements. This allows us to set the correct expected payback each month and then build a contract that works for both parties.

There are a few other limitations that we usually specialized to a specific industry or other factor. But the above covers 90 percent of the cons.