By Steven Feldshuh
Merchants' Choice Payment Solutions East
If you’d asked me about 10 years ago why I wasn’t offering cash advance products to my sales group, I would have lectured you about the “evil program” that sucks the life out of merchants. In those days, the concept was new, with few companies participating.
In addition, a handful of those offering cash advance built poor reputations by misleading and ripping off small businesses. Regulations were nonexistent. Advances were referred to as loans. There were no guarantees. The paperwork appeared to have been written by third graders; explanations were limited and secretive. The truth was not told. It reminded me of the golden days of the $129 per month terminal lease. Also, most merchants who took out cash advances were required to switch their credit card processing to a new company because only certain processors could do what was referred to as “split funding.”
Split funding was explained as split payments to the lender and merchant based on the credit card receivables. This also meant a much higher cost of processing to the merchants. Even though our customers complained and didn’t want to leave our company for processing, they still did, because they desperately needed the money to run their businesses. We started to lose accounts to these cash advance companies.
Along with processing rates of extraordinary heights, merchants were also charged lease costs for terminals that could do the split funding. Then there was the upfront fee for getting the advance, which could reduce the actual funding to the merchant by 10 percent or more. The upfront fee was either a percentage or fixed amount, the higher the better.
Payback time frames were extremely short, no longer than five to six months. Some companies sold the product as a “quick loan,” an incorrect term since the process of getting the money took weeks, not days. Others referred to the advances as SBA loans, lines of credit, bridge loans and working capital loans. The only truth was that the merchant would receive extremely expensive working capital, along with an expensive terminal.
Much has changed since then in terms of companies participating in the industry. It seems there are now more small cash advance companies than ISOs, perhaps because, with cash advance, the return on time spent is so profitable. Yes, you still have bottom feeders who charge outrageous amounts on top of higher costs, but some excellent, well-financed companies have entered the sphere to present more transparent products and limit the amount that can be charged to a business.
These and other fundamentally sound companies limit “up selling” or “ripping off” by sales agents, require that agents fully identify themselves and their business relationships, and enforce contracts requiring agents to act in a professional manner. I believe these well-funded, ethical companies can help sweep away some of the trash still out there.
Today, it appears almost every processor offers at least one, if not multiple programs for merchant funding. Should we all get involved in cash advance, or should we leave it alone? Does someone need special credentials or training to be good at this business? Can credit card folks competently represent this product, or should we work with specialists? Are the rates still a killer and the upfront costs still a deterrent?
Ten years ago I wanted nothing to do with cash advance. Over time, it became a question of how involved I should get. However overcoming my own resistance was just the beginning.
A major issue I encountered is that few sales agents grasp the cash advance concept right away, and many feel that learning to sell the product would be a bother – no matter what I do. I’m not sure whether this reluctance arises because credit card folks like sticking with only what they know, or that they just don’t want to get involved with this product.
The reason most agents cite for not pursuing cash advance is high rates. The answer I give them is that if your merchant needs money and can’t get it from family, friends or a bank, he or she will find it somewhere.
I have seen the same issues arise with gift and loyalty programs, but in the case of cash advance, more is at stake because there is more money to be made. The product also provides you another reason to visit your merchants and locks them in for the period of the advance. Additionally, merchants typically renew once the money is paid back to the lender, which gives you another payday.
I do think cash advance and credit card reps tend to have different types of personalities. I have seen both at work and, yes, there are distinctions. But that doesn’t mean credit card reps can’t spend a few moments filling their merchant customers in on a few cash advance basics and offering to help when they need money. Reps can either handle cash advances themselves or hand off leads to someone who is more comfortable dealing with the specifics.
Cash advance specialists don’t need official credentials, but they do need experience and a system in place to be successful. Just like when we all started our careers in credit card processing, there is much information to digest, as well as new techniques to learn to become successful. I believe credit card professionals can either learn the ins and outs of the funding business or can certainly work out a split arrangement with someone who is a pro in this market.
As credit card professionals, we should all learn the cash advance basics and decide whether to set up some sort of referral partnership for this product or do it in-house. If we go the partnership route, we need to find relationships with cash advance companies that treat merchants the same way we treat our merchant customers. Such potential partners do exist.
My company’s decision was to offer a hybrid program for our sales offices. For agents seeking full involvement, we let them submit completed applications directly to us, finalize the terms of the deals directly with their merchants and decide for themselves how high their commissions should be.
For agents who didn’t want to be the face of the advance company, we arranged a commission split with a cash advance specialist, who works in-house. For the past two years, the in-house specialist has helped many of our reps close deals, lock in merchants and provide terrific additional income for those who participate. With income from leasing terminals at an all-time low, this additional revenue has helped boost agent income tremendously.
After two years of success for our hybrid cash advance program, we set up a completely new cash advance division. The concept is to find the best, most affordable program for each merchant the division serves. The idea isn’t unique, but to us, it makes good business sense.
Steven Feldshuh, President of Merchants' Choice Payment Solutions East, has 18 years' experience in sales and ISO development. Directly prior to joining MCPSE in 2012, he was President of Payment Partners. In his current position, Steven devotes the bulk of his time to assisting agents in building their portfolios. Contact him by email at email@example.com or by phone at 212-392-9202.
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