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!
