How to Track Daily Payments and Balances on Your Merchant Cash Advance

Getting a merchant cash advance can provide your business with much-needed working capital. Unlike a traditional small business loan, a merchant cash advance provides you with a lump sum of cash upfront in exchange for a percentage of your future credit card sales. There are no fixed monthly payments. Instead, the merchant cash advance company takes a set percentage of your daily credit card sales until the advance is paid back in full.

While this flexibility can be beneficial, it also makes tracking your daily payments and remaining balance more challenging. Here’s a step-by-step guide on how to easily track your merchant cash advance balance and payments.

Understanding How Merchant Cash Advances Work

Before diving into the tracking process, it’s important to understand exactly how merchant cash advances work.

When you get approved for a merchant cash advance, the company provides you with a lump sum of cash upfront. Let’s say they give you $100,000. In exchange, they take a percentage of your daily credit card sales – usually between 8-15% – until the advance is paid back in full.

So if your credit card sales are $1,000 for the day, and you have a 10% repayment rate, you would owe the merchant cash advance company $100 that day. These payments are automatically withdrawn daily from your bank account linked to the credit card processor.

The total amount you end up repaying depends on how quickly you hit your credit card sales goals. The faster your business grows, the quicker the advance will be paid back. There are no set repayment terms or fixed monthly payments.

Set Up a Separate Business Bank Account

The first step in tracking your merchant cash advance is setting up a separate business bank account specifically for the advance. This account should be linked to your credit card processor so that the daily payments can be automatically withdrawn. No other transactions should go through this account.

Having a dedicated account makes reconciliation much simpler. You can easily track incoming deposits from credit card sales and outgoing payments to the merchant cash advance company in one place.

Be sure to choose a bank that offers robust online banking features and daily downloadable bank statements. This will make the tracking process much easier.

Link Account to Bookkeeping Software

In addition to a separate bank account, you need to link that account to your bookkeeping software or accounting system. This allows you to automatically import bank transactions and match them up to customer invoices.

QuickBooks Online, Xero, and FreshBooks all integrate seamlessly with most major banks. This saves you from manually entering each merchant cash advance payment.

For proper tracking, you need to set up a dedicated Merchant Cash Advance account in your chart of accounts. When imported transactions hit this account, you can easily filter and track the payments.

Review Remittance Reports

Most merchant cash advance companies provide daily or weekly remittance reports detailing the amount withdrawn from your account that day. For example, the report may show that $412 was withdrawn on Monday based on your credit card sales.

Be sure to cross-reference remittance reports with your actual bank statements and bookkeeping system. This allows you to double check that the correct amounts are being withdrawn daily.

Look out for any discrepancies between the remittance reports and your bank transactions. If you notice any inconsistencies, reach out to your merchant cash advance company or processor right away to get it fixed.

Set Up Custom Reports

Once you have everything set up in your bookkeeping system, take advantage of custom reporting features to track your merchant cash advance balance and payments.

For instance, in QuickBooks Online, you can create a Merchant Cash Advance Summary report that shows your beginning balance, payments made, remaining balance, and payoff date projection based on average daily payments.

Review this report weekly or monthly to see how you are progressing. If your credit card sales start to slow down, the payoff date will get extended out further. Use this to monitor cash flow needs.

Calculate Payoff Manually

In addition to custom reports, do a manual calculation periodically to double check your remaining balance.

Take your original merchant cash advance amount and subtract the payments made to date. This will give you the current balance still owed.

Then take the average daily payment amount and divide the remaining balance by that figure. That gives you an estimate of how many more days until payoff based on current sales trends.

Cross-check your manual calculations with the reports to ensure everything aligns. Immediately investigate any discrepancies.

Automate the Process

To make the reconciliation process as smooth as possible, automate what you can. In addition to importing bank transactions, you may be able to automatically import remittance reports into your accounting system.

This eliminates the need to manually download and review statements and reports. The key numbers can automatically flow into your books.

Check with your merchant cash advance company and accounting software provider to see what automation options may be available. This saves significant time and minimizes data entry errors.

Make Additional Payments

Most merchant cash advance agreements allow you to make additional lump sum payments along the way to pay down your balance faster.

For instance, if you received an influx of cash from a big client project, you could opt to make an extra $10,000 payment to reduce your remaining balance. This shortens the payback period.

When making lump sum payments, be sure to properly apply them in your accounting system against the merchant cash advance balance. Don’t just deposit to your regular operating account.

Refinance Options

Some businesses run into cash flow issues and struggle to pay back their merchant cash advance timely. This results in a ballooning payoff balance as the repayment period gets extended.

If this happens, look into refinancing options. You may be able to take out a new merchant cash advance, or even a bank loan, to pay off your existing balance at better terms.

Carefully compare the cost of refinancing versus continuing with extended payments on your current advance. Refinancing could result in significant interest savings.

Leverage Technology

There are now various software platforms designed specifically to streamline the merchant cash advance process. These provide a central dashboard to track balances, payments, and cash flow.

Some popular options include:

• Kabbage: Offers MCA tracking software linked to your credit card processor and accounting system. Provides real-time reporting.
• Crestmont: Crestmont’s software integrates with QuickBooks Online for automated data syncing and reporting.
• FundThrough: Provides complete visibility into your outstanding MCA balance and cash flow management tools.
• Forward Financing: Forward Financing’s dashboard allows you to make additional payments and access reporting.

Evaluate different platforms to find the right fit for your business. The technology can automate much of the heavy lifting when it comes to tracking and reconciliation.

Create Reminders

Even with automation in place, you still need to regularly monitor your merchant cash advance account activity. Set calendar reminders to review reports and payments on a consistent basis.

For example, block off 30 minutes each Friday morning to log into your accounting system, review latest transactions, check balances, and verify no errors. Consistent monitoring helps catch any issues right away.

Communicate with Your MCA Provider

Open and frequent communication with your merchant cash advance provider is key. Immediately reach out if you ever notice discrepancies in payments or reporting.

Also communicate any significant changes in your sales volume or business operations that could impact daily payments. This allows them to work with you on potential payment modifications if needed.

Ask your MCA provider for the best contact person to reach out to with questions or issues. Save their direct email and phone number so you can easily get in touch.

Understand the Agreement

Before entering into a merchant cash advance agreement, be sure to read the contract thoroughly and understand all terms and conditions.

Pay close attention to:

• Repayment percentage rate
• Payment frequency (daily/weekly)
• Any fees
• Options for making additional payments
• Circumstances that could trigger higher rates

Don’t hesitate to ask the MCA provider questions if any aspect of the agreement is unclear before signing. Knowing the contract details makes tracking the payments easier.

Seek Professional Advice

If at any point you need assistance reviewing your merchant cash advance agreement or tracking payments, don’t hesitate to seek guidance from a professional.

An accountant or financial advisor can help explain the contract terms and provide unbiased advice about whether the MCA makes sense for your business.

They can also review your tracking process to ensure you have accurate reporting on payments and balances. Having an expert set of eyes review the numbers provides peace of mind.

Stay Organized

Tracking a merchant cash advance does require some additional administrative work. Stay organized by keeping all related documents in one place.

Set up a digital folder or physical binder for your agreement, remittance reports, bank statements, accounting system reports, correspondence with the MCA provider, and any other related documentation.

Being able to quickly access all MCA paperwork will make your record-keeping and reconciliation much easier when questions arise.

Build Cash Reserves

Ideally, you want to build up your cash reserves so you can pay off your merchant cash advance early. This minimizes the total amount you end up repaying.

Aim to set aside a percentage of each deposit you make to your operating bank account specifically earmarked towards an extra merchant cash advance payment.

As this cash builds up, make additional lump sum payments whenever possible to pay down your balance faster.

Plan for Future Needs

If your business relies on merchant cash advances for working capital, be proactive about planning for future funding needs.

Track your current balance so you know in advance when it will be fully paid off. This gives you time to evaluate options and apply for a new MCA or loan well before you need it.

Avoid waiting until the last minute when you are desperate for cash. Build in plenty of runway to secure financing and ensure you don’t face any cash crunches.

Create a Cash Flow Forecast

A 12-month cash flow forecast is a must when you have a merchant cash advance. This helps predict when you may need additional financing based on projected income and expenses.

Factor in your estimated merchant cash advance payment each month based on sales forecasts. Look for any potential shortfalls between income and expenses that could require extra funding.

Update your cash flow forecast each month as you get new data. Use it to make smart financing decisions for your business.

Assess Your Financing Options

Before taking out a merchant cash advance, assess whether it is the right financing option for your business or if more affordable alternatives may be available.

Crunch the numbers to understand the total fees and APR associated with the MCA. Compare to loans from online lenders, community banks, or SBA loans.

While MCAs provide quick access to capital, they are not the least expensive option. Be sure you evaluate all your choices to select the best fit.

Weigh the Pros and Cons

Merchant cash advances can provide fast, flexible access to working capital. However, they come at a steep price. Carefully weigh the pros and cons before obtaining one.

Pros:

• Quick funding
• No collateral required
• Payments tied to sales
• No set repayment schedule

Cons:

• Very high APR
• Large daily repayment amounts
• Balloon payments if sales drop
• Locked into agreement

Only you can decide if the benefits outweigh the costs for your unique situation. Crunch the numbers carefully as you make your decision.

Tracking your merchant cash advance payments and balance takes a bit of work, but is critical. By implementing the right processes and technology, you can easily stay on top of your outstanding balance and payments. Automate what you can to streamline reconciliation. And be sure to monitor activity consistently to catch any errors right away.

With some planning and organization, you can effectively manage your merchant cash advance so it provides your business with the working capital boost you need without creating any headaches.