What Is The Principle Behind
Merchant Cash Advances works in the same manner as that of invoice factoring. The process of invoice factoring involves selling of sales ledger or a specific part of the sales ledger to a group of lenders or individual lender. It provides immediate cash to the company and the sales lender gets paid when the pending ledger invoices of the company are settled.
With business funding, the business sells its revenue stream that will be received by future credit card receipts against the business. The process starts by evaluation of sales from credit cards for a given period of time and a certain portion of this amount is paid to the owner as cash advance. The lender receives the money from those sales after they are made.
In both of these cases, there is a fee involved depending on the amount of cash advance which is charged by the lender. Depending upon the terms of the agreement, fee amount and other costs vary accordingly. The rate of interests depends on the level of risk and flexibility offered from the funding group.
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