By Mike Evans
2nd Source Funding
Cash advance. Sound familiar? It should; many merchant level salespeople (MLSs) are hearing that phrase a lot these days. I sit on a telephone auto dialer all day that connects me to over 60,000 merchants.
And when I get through to interested merchants, they tell me they are being bombarded with offers for quick, unsecured cash using their future credit card sales to guarantee the payback.
These are your merchants. And, with the right offer, they will quickly give up your processing account. When presented with the opportunity to get $50,000, or even $10,000 or more wired to them within five days, why should they stay with you?
In New York alone, more than 15 new cash advance companies have materialized since September 2007. I recently visited a new office with 80 empty seats ready to be filled with fresh employees. And another location soon to open up in Manhattan will have over 150 callers ready to snatch your merchants and residuals.
So, how do you stop this loss? Sell your merchants the cash advance product now before your attrition rate climbs.
The cash advance product is unsecured, uncollateralized cash supplied to a merchant in return for future credit card sales. The funding institution, or bank, purchases a future amount of credit card sales today at a discount.
For example, a merchant will receive $10,000 today for $13,000 worth of future credit card sales. This means in return for the upfront funds, the merchant has to pay back $13,000.
The bank takes over the merchant's credit card processing account and captures a set percentage of the future credit card sales, usually around 20%, until the $13,000 is paid back in full.
The first step in selling the cash advance product is to qualify merchants to make sure they accept credit cards and have been in business for at least a year. Next, you want to develop rapport with them by showing interest in their business affairs.
Find a mutual interest between yourself and the merchant. Once common ground is established, begin the process of explaining how the cash advance program works. Here is an example of basic dialogue that should take place:
MLS: OK, this is how our program works, Merchant. I can get you about one-and-a-half times your monthly credit card volume to start. So, since you told me you're doing about $10,000 a month in credit card business, we can start with about $15,000. And the way we get paid back is by capturing a set percentage of your future credit card sales.
Merchant: What is the percentage?
MLS: Well, the underwriters determine the percentage. But I can tell you it will be in the range of between 20% and 25% of your future credit card sales. For example, if the percentage is 20%, and someone charges $100, $80 will go to you and $20 will go toward paying back the advance.
Merchant: What's the interest?
MLS: We don't charge an interest, only a flat fee.
Merchant: What's the fee?
MLS: Again, the underwriters determine that. But on average for each $10,000 we advance you, you'll pay back somewhere in the neighborhood of $13,000. And the good thing about our program is that there are no set payments or time to pay it back.
Merchant: How does that work?
MLS: Well, since we capture a set percentage of your future credit card sales, if you have a slow month, we have a slow month. For example, if the capture rate is 20%, and you do $10,000 one month, we capture $2,000. And, say, the next month you do only $3,000 in credit card business, we capture only $600.
And the reason there is no set time to pay it back is that we capture that set percentage of your future credit card sales until it's all paid back. You know upfront exactly how much you have to pay. Also, unlike a bank there is no prepayment penalty if you want to pay it off early.
That's just an overview of how to present the cash advance product to your merchants. Like any other sales, the more you do it, the better you'll get. And, of course, you will develop your own style and add personality, while also customizing your speech for each merchant.
With so many new cash advance companies starting up across the country, it is important that you educate yourself and make this service available to your clients. Don't be so anxious to offer cash advance that you get careless. There are too many start-up companies that are fly-by-night. Even some of the older companies have less than stellar reputations.
Be sure to do adequate research and obtain a solid company to do business with before offering their service to your merchants.
Mike Evans is Sales Manager at 2nd Source Funding in New York. He has more than 30 years of experience in the sales field. Contact him at firstname.lastname@example.org or visit his blog at cashadvancenews.blogspot.com.
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