Lockbox Accounts

Posted in Trust Business Loans News & Information on September 13, 2011


This post starts up where the last one left off.  If you happened to come across this one first, we suggest reading that one first and then continuing here.

We’re going to examine what happens when you enter into a merchant cash advance, but your credit card processor doesn’t have holdback / split funding capability.  One obvious solution here is to change processors to one who will split fund.  However, many merchants like their current processor and don’t want to change.  What to do then?

The solution is called a “lockbox account“.  It might sound tricky at first, but it’s simple and logical.  If your processor can’t split funds, find someone who can!  Let’s look at the daily routine from yesterday’s example, turn it into lockbox, and then get into specifics:

  • Batch out sales from your credit card machine at the end of each day.
  • Your processor receives your batch info electronically.
  • A day or two later, the processor sends the funds to a third party bank, also known as the “lockbox account”.  (The processor might take fees out daily or once per month.)
  • The lockbox account manager receives the funds and immediately forwards out 80% to you and 20% to the merchant cash advance lender.

See the difference?

Your merchant processor is not sending funds to your business bank account directly anymore.  Instead, it’s sending the funds to a different bank account, (still in your business’ name technically), and the manager of this other account splits up the funds into your share and the lender’s share.  Your portion is then sent to your usual business bank account while the lender’s portion is sent to theirs.

The third party “lockbox” causes a 24 hour delay from when you’re accustomed to getting your funds to when you’ll now be getting your funds.  You’ll want to plan for this in your cash flow.

You might be wondering, “what’s in it for the lockbox company?”  The lockbox companies charge the lenders for this service.  The lenders in turn charge the merchants for it.  Lenders generally charge setup fees in the neighborhood of $100-$300 and then subsequent monthly fees around $25/month or so.  But, the advantage here is that while receiving a business cash advance, you didn’t have to change processors.  So, perhaps the cost is worth it to you.

Still Confused?

You’re already accustomed to your processor sending your credit card sales directly to your bank account.  With a lockbox, they send your funds to a third party bank.  That party then splits the funds both into your share and the lender’s share.  It also sends those funds out immediately so they reach you and the lender the very next day.

Because your processor cannot split funds, there is a third party to do the job.

Lockbox accounts are a great solution to a merchant cash advance when the merchant’s credit card processor doesn’t have holdback / split funding capability.



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