Merchant Cash Advance: What is a Factor Rate?

A ‘Factor Rate’ of interest is a term normally associated with Merchant Cash Advance finance, or MCA for short. Merchant Cash Advance finance is when a business is able to borrow against the revenue forecasted to go through your Card Machines. For example, if you turnover £5,000 a month, you can borrow £5,000 from a lender, and pay it back daily from your takings.

A factor rate of interest is not expressed in percentages like standard interest rates but as a decimal figure. These will range from around 1.1 and even up to 1.9. This number represents the amount you will pay back on your loan

While factor rates sound straight forward, there is a lot you need to think about if you are thinking about applying for a merchant cash advance.

How Does a Factor Rate Work?

If your business is looking for a short term funding option, to boost your cash flow or to give you working capital quickly, a merchant cash advance could be a good option.

Unlike a standard loan, where you have a variable or fixed interest rate to pay back, MCAs or Cash Advance Loans, are calculated using a decimal figure that presents what times the loan you must pay back.

Other short term loans with Tier 3 or 4 lenders, might also use factor rates or buy rates to determine your total repayments.

Your factor rate is usually dependant on how long you have been in business and your average monthly turnover through your card machines.

Understanding Your Factor Rate

It is important to understand how interest is calculated on a factor rate loan, compared to a standard interest rate loan. Businesses don’t often think of this and can sometimes get very unstuck.

When thinking about Factor Rate loans, it is about determining what your total repayment will be.

For Example:

Say my business got a Cash Advance of £10,000 at a factor rate of 1.5 for a 12-month term. 

The total amount my business will need to pay back is £15,000 (£10,000 x 1.5 = £15,000). Having the knowledge that you are paying £5,000 for that £10,000, at first glance, you might think you’re paying 50% interest rate for the short term advance.

However, this is the wrong way to think about this.

The total interest cost of the loan is 50%, however, when a factor rate is being used to calculate interest, it predetermines your interest in one lump upfront when the cash is advanced. An interest rate loan (APR), may have the same interest rate, but the interest is calculated on what is left owing on the loan every month, rather than upfront at once.

For example, a £10,000 loan on the same APR (50%) as a Merchant Cash Advance Factor Rate (1.5) – would cost  £2661.94, compared to the Factor Rate of £5,000.

Other things to be aware of with Merchant Cash Advances are are that they are calculated daily. In other words, if you have a cracking day, you will pay more of your loan back on that day, when compared to a quiet day. This could mean that your cash flow could again be stretched if you were relying on those busy days to fund you through a quiet period.

How Do I Apply for a Merchant Cash Advance

We help companies every month access MCAs around the UK. There a number of providers who offer this finance, which can make the market nice and competitive. These products are really good for small cafes, bars and other retail shops that have strong card sales.

To process an application, and help you find the best rate across the market, I will need the following documents:

  • Merchant Services Statements. Usually, between 3 – 6 months of statements from your card provider.
  • Business Bank Statements. I will need your last 6 months of company bank statements.
  • Years in Business. For most lenders, that would be competitive, I will require a minimum of one-year trading history.
  • Companies House Return. I will also require your last Ltd Companies return, filed with companies house.

At the end of the day, like with any finance, it is about risk. If a lender can see numbers that stack up, the cheaper the rate will be. If a lender is worried about your numbers or your industry, you might find your rates being higher.



Top Cashflow Planning Tips

Cashflow is often a massive headache for entrepreneurs, cashflow issues in the best cases mean that you can’t move your business forward and grow your business, in the worst case scenarios it can mean the collapse of a business. When businesses have cashflow issues it usually means that the money is coming and is due to arrive shortly but as the money is not here and now it’s causing problems for your business. Acceler8me offer consulting services for cashflow planning, that’s why we’ve taken it upon ourselves to give you some quick and simple tips for improving your cashflow.

Cashflow Planner

One of the first things you need to think about is creating a cashflow planner. If you have the budget for it it’s best to utilise cashflow planning software such as Unit 4, however you can also develop a decent cashflow planner yourself through spreadsheets such as excel with a close monitoring system.

Detailed Financial Monitoring

Monitoring your financial statements and invoices as closely as possible, if you notice a single bill that seems questionable, question it. If you were offered a discount for a product or service and the discount wasn’t applied make sure that it is applied. If you stopped paying for a service and are still being charged make sure you get a refund. The sooner you notice any financial discrepancies and the sooner you resolve them the better chance you have of getting your money back.

Getting Paid Faster

Often many businesses will allow their customers to pay a month after their services have been charged, whilst this may be standard practice in your industry if it is always best to get payment in advance. If getting paid retrospectively is normal in your industry then try and see if there’s any way you can get paid in advance by offering incentives such as discounts. This principle can also be applied when your customers pay month-month where you can offer them an incentive for paying annually. Furthermore if your customer is in debt to your company then apply a zero tolerance strategy, as a first point of call stop providing them with your services if it goes further you may need to contact a debt collection company.

Improving Supplier Relationships

Our last two tips for cash flow planning centre around your relationship with suppliers. Firstly if you’re using a lot of suppliers for your business it may be worth seeing if you can develop a relationship where they can offer you interest free credit and if they don’t, try to leverage them against a similar business that will. Finally when you’re buying an overstock of products which end up sitting in a warehouse for months try and rearrange your procurement strategy through your relationship with your suppliers to see if you can purchase smaller orders for similar rates.

Accerler8me offer consultancy for cashflow planning, contact us to find out more.

The Benefits Of CRM (Customer Relationship Management) from a CRM Consultancy

There are numerous reasons for using CRM tools though for many when they first encounter a CRM they are perplexed and overwhelmed by the tools available to them. Often there are teething issues where business managers do not know the best way to utilise a CRM system. Acceler8me is a CRM consultancy that’s why we’ve taken it upon ourselves to write a short blog piece of on the benefits of CRM.

Automating Your Business

One of the most important features of CRM’s is the ability to automate everyday tasks. A CRM system can be linked to your email address so that emails can be sent out to your lead and clients in an automated fashion. Whether that’s to remind them to pay a bill, to follow up on a lead reminding them of a proposal that you previously discussed or to let them know of a new service or product that you are offering.

And that’s not the only thing that CRM’s can automate if you need to send your clients regular invoices or reports a CRM can create these a lot quicker than developing them manually. The reports don’t necessarily have to be focused on your client’s business either, you can use the reports to see the progress of your own business and to ensure that you are reaching your targets and KPI’s.

Improving Time Efficiency

Another great feature of CRM’s is the amount of time it can save you, after all as the old saying goes time is money! If you’re able to save yourself or your marketing and sales managers from managing menial business tasks you free up there time to focus on the more important business-related tasks. Menial tasks also lead to workplace apathy and low morale by keeping your workforce focused on the more challenging aspects of your business you are keeping them motivated and more satisfied with their work.

Offering Great Customer Service

Last but certainly not least there’s the impact on customer service, as the name suggests customer relationship managers allow you to offer great customer service.  What’s great about CRM’s is we are able to contain all of our client’s data at our fingertips, that means if you client needs any information regarding their business you’re able to provide it to them far quicker than if you did it manually. This increases your client’s loyalty and thus their retention and can win you more business through referrals. That’s not to mention the fact that CRM’s also allow you to keep track of any prospective clients or leads that are coming through to your business.

CRM’s are a great way to improve your business, if you need any help or advise with developing a CRM contact Acceler8me today.

Commercial Funding

Top Tips for Creating a Business Plan from Business Planning Consultants

Business Planning is the first and most important step in creating your business, as business plan consultants business planning is a skill we’re well acquainted with. Acceler8me understands that many business owners have trouble putting together a coherent business plan that truly encompasses all elements of their business which is why we’ve decided to put together our top tips for business planning.

Create a Business Plan for Your Business Not Your Investors

The first and most important point is you need to create a business plan that will act as a blueprint for developing your business, not something to wow investors and funding providers. It’s all well and good creating a business plan that looks great on paper but if it uses dubious data and details procedures that you have little intention of implementing there will be consequences. Firstly most investors can see through this kind of fluff and secondly if you get the funding but your plan is inherently flawed your business will have little chance of succeeding.

But Don’t Forget to Sell Your Business

Whilst you’re business plan should be created for your business, that doesn’t mean you should avoid pitching your business. Business is all about selling yourself and you need to make sure that every piece of data used and every graph created reinforces the reasons why your business is a good idea. When you state that your business sector is experiencing high levels growth explain how your business will capitalise on that growth. When your explaining your growth projections, justify why specifically your business will achieve those targets. When you talk about your competition make sure you illustrate why your business is unique and will overcome the challenges that your competition are facing.

Avoiding Waffle

With so many features that can exist within a business it’s easy to get bogged down in unnecessary details that will turn investors away from considering your business plan proposal. Investors like to look at businesses that are lean with minimal fluff. A business plan is not a time to demonstrate your skills and knowledge of technical terms, it’s a time to demonstrate to investors and funding providers that if they invest in your business there will be a benefit to them. The focus of your business plan should be on sales revenue, growth forecasts, return on investment and most importantly your unique selling position.

Acceler8me offers business consulting services to our clients to find out more please contact us.

Top Sales Strategy Tips from a Sales Strategy Consulting

Often we come across businesses with a great product or service but have a tough time selling their product due to a poorly constructed sales strategy. Acceler8me offer sales strategy consulting services for business that require help with their sales strategy. We often write blogs related to our services to offer tips and advice to our clients and prospective clients. One of the main reasons we do this is to demonstrate how we can be of service to your business, that’s why today we’ll be discussing sales strategy.

You can start talking about all the features that your business offers and the many tools that are available but if you’re not willing to state how it benefits your clients they will likely lose interest very quickly. If your target market is B2B then it’s about how your business will improve their business, if it’s B2C then it’s about how it will improve their lives. Whether that’s generating more income for their business or having a better well-being in their lives you have to sell the benefits of your business.

When you work in an industry for a while it’s easier to get so accustomed to the types of jargon that are used that often when you speak to your customers they won’t know what you are talking about. Understandably sometimes this is unavoidable however when you can avoid using jargon you should. Firstly make a list of all the main terms used in your business and think of a layman’s translation. Making a note of all the jargon terms used in your business will also help you remember which terms are likely to cause confusion. Meaning that you can look out for them in your sales pitches and pause and ask your prospective clients if they understand what you just said.

Over time when working in a specific industry you will notice the characteristics of your target market, studying these characteristics will help you realise the kind of etiquette that will be expected of your business. Finally last but certainly not least you need to understand that your leads have a million things they are thinking about and your business is often the bottom of that pile, you cannot expect them to contact you, you need to chase them up and make sure they remember about your business otherwise they’ll forget all about you.

Accelr8me offers sales strategy consulting to find out more contact us.