Merchant cash advance costs involve more than the percentage collected from sales. Compare the amount received, the full funding cost and the effect of collections on the business’s retained cash.
Use the written quotation and agreement to understand the actual cost. Check the collection rules alongside the cash your business needs for stock, wages and other bills.
Separate the funding fee from the collection rate
The funding fee or other pricing calculation determines the cost of obtaining the advance. The collection percentage determines the share of qualifying receipts collected under the agreement. They answer different questions.
A smaller collection percentage does not automatically mean a cheaper offer. It may change the collection pattern while leaving the agreed funding cost unchanged. Ask how each figure is defined and calculated.
An illustrative cost calculation
Suppose a business receives £10,000 and the agreed funding fee is £2,000, with no other charges. The total to collect is £12,000. This is a worked example, not a PDQ quote or an indication of available pricing.
| Item | Illustrative amount |
|---|---|
| Funds received | £10,000 |
| Funding fee | £2,000 |
| Total to collect | £12,000 |
If the agreement used a factor of 1.2 on the amount advanced, multiplying £10,000 by 1.2 would also produce £12,000. The £2,000 difference is 20% of the funds received; that figure is not an annual percentage rate.
For a separate illustration, collecting 10% of £1,000 of qualifying receipts produces a £100 collection. The £900 left is before the business’s other costs. This collection rate does not describe the funding fee.
Why the collection timetable matters
Two offers with the same total funding cost can affect cash differently. Examine the qualifying sales definition, collection frequency and expected trading pattern. The time taken to clear a balance can also affect how you assess the cost relative to alternatives.
Do not convert a fixed fee into an annual rate by simply renaming it APR. A meaningful time-based comparison needs the actual cash-flow pattern and pricing assumptions. Ask for an explanation or independent assistance where the figures are unclear.
Compare each quotation on the same basis
- Net proceeds: what reaches the bank after any deductions?
- Total commitment: what must be collected, including all stated charges?
- Sales basis: which receipts qualify, and how are refunds or other deductions treated?
- Collections: what percentage, frequency and payment mechanism apply?
- Conditions: are there minimum payments, reconciliation requirements or a deadline?
- Changes: what happens during closure, weaker sales or a payment-provider change?
- Settlement: does paying early reduce the financing cost?
Keep the written quotation and contract together. A headline fee does not replace the conditions that control how the facility operates.
Check affordability and personal exposure
Forecast cash after stock, payroll, premises, tax and existing finance. Test weaker card sales and lower margins. Even when collections fall with qualifying receipts, other operating costs may remain unchanged.
Read security and personal guarantee documents separately. An unsecured arrangement does not automatically remove personal liability. Understand the obligations before accepting the offer and consider independent advice.
A funding fee that appears manageable against turnover can still be difficult against the profit and cash retained. Compare the benefit of the purchase with the full commitment.
Compare an advance with other finance
An advance, a term loan and a credit line can use different pricing and repayment methods. Compare the same business requirement and available cash, rather than assume one product is universally cheapest.
The British Business Bank merchant cash advance guide provides independent background. Our advance versus business loan comparison focuses on choosing a structure.
For an enquiry, prepare bank and merchant statements, current borrowing and a costed purpose. The provider assesses eligibility and pricing; an enquiry does not guarantee an offer.
Frequently asked questions
Is the collection percentage the interest rate?
No. It describes the share of qualifying receipts collected. The funding fee or pricing calculation determines the financing cost; check both in the agreement.
Is a factor rate the same as APR?
No. A factor is a multiplier used in a pricing calculation. APR is an annualised measure and should not be inferred simply from that multiplier.
Will paying early save money?
It depends on the agreement. A fixed funding cost may not reduce in the same way as interest on a loan. Request a written settlement calculation.
Can I compare providers using the headline fee alone?
No. Compare net funds, all charges, sales definitions, collection rules, guarantees and other conditions for the same requirement.
To put the cost comparison alongside the contractual structure, read our guides to merchant cash advances versus business loans and UK merchant cash advance regulation.
Discuss your funding requirements
Complete the online enquiry form or call 01246 233108. Tell us the purpose, amount required and how the business trades.
PDQ Funding is a broker, not a lender. We do not charge for using our brokerage service and receive lender commission following a successful introduction. There is no obligation to accept an offer.