Credit Card Receivables Pricing and Costs

Know the cost of obtaining funds through credit card factoring
By Tara McClendon, Freelance Writer/Editor Tara McClendon Credit card receivable financing is an alternative method of securing working capital. When you use this type of funding, you are selling a portion of your future sales, determined by credit card receivable factoring, to a provider. The benefit is that people who can't get traditional financing can get this type of funding. The downside is that it costs more than traditional methods of infusing cash.
 

With this type of financing, often called a merchant cash advance, you won't need to jump through the hoops to prove your credit worthiness. Because credit card receivable financing is not viewed as a loan, the cost for the funds varies drastically. When you consider credit card receivables pricing and costs, you will want to look at the following components:

1. Find credit card receivable financing services from companies that don't charge an application fee.

2. Determine what the financing charges, sometimes called origination fees, will be before signing paperwork.

3. Evaluate the receivable percentage and shop around for the best rate.

Look for companies that offer credit card receivable financing with no application fee

When it comes to credit card receivables pricing and costs, you want to consider any application or upfront fees. Most legitimate companies will not charge you anything up front, but when a company does charge, the fees vary based on the company's policy. Some companies use a set fee, but others charge a percentage of the advanced amount as the application fee.
Try: The Los Angeles Times provides an article on how to evaluate providers of credit card receivables. It includes advice on companies that charge an application fee. Discount Merchant Funding will purchase your credit card receivables with no application fees or fixed payments. It takes a percentage of future credit card payments directly from your sales until you repay the loan. Rapid Advance offers a no cost/no obligation quote, so you will know up front what the application fee will be. The company discloses all of its fees and charges before you agree to the loan.

Find out the origination fee for funding credit card receivables

Providers of credit card receivable funds make money by charging an origination fee, sometimes referred to as finance charges. The amount for this fee will vary depending on your business situation and the risk involved for the company to provide you with the funds.
Try: Lion Communications offers a break down of credit card receivables funding, including information on the origination fee that it charges. Crown Financial Services covers the basics of finances charges used in factoring credit card receivables funding.

Know the receivable rate for credit card receivable financing

An interest rate is a term that only applies to a loan, so many providers will use the term receivable rate to identify the percentage of your sales that the provider will take to repay the advance. This is a prominent part of pricing and costs for this type of funding. Most sources site a receivable rate of 26 to 30 percent of your sales. In some cases, a provider may include its financing charges in the percentage.
Try: Strategiesforsmallbusiness.com offers an overview of the typical interest rate charged for financing credit card receivables. It also gives an example of how to add the credit card fees to the payment to determine the total amount being deducted from your sales. BusinessWeek provides an article on how merchant cash advances work and includes a break down of the interest rate and how it compares to an annual percentage rate (APR).