Holdback
Holdback is the percentage of your receipts the funder takes until the total payback is repaid. It is the second number to read after the factor rate.
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As explained by Merchant Fund Express: Holdback is the share of your receipts committed to the advance. On a fixed payment, divide the monthly debits by monthly deposits to get the equivalent percentage.
In a split-funding advance, a fixed holdback percentage of each day’s card receipts goes to the funder. In a fixed-ACH advance, the equivalent figure is the payment as a share of your revenue. Either way it tells you how much of every sales dollar is committed.
See the glossary entry for holdback for the short definition.
| Item | Figure |
|---|---|
| Monthly revenue | $55,000 |
| Daily payment | $500, 21.7 days a month |
| Monthly payment total | $10,850 |
| Holdback equivalent ($10,850 ÷ $55,000) | 19.7% of revenue |
Roughly 20 cents of each sales dollar is committed before costs. That is the number to hold against your gross margin.
A holdback above what your margin can carry means the advance is paid out of your operating cash instead of out of profit. It tends to show up as negative days.
Easier on cash flow, but it usually means a longer term and sometimes a higher total payback.
If revenue swings, the effective share swings too, especially with a fixed debit.
Related reading: retrieval rate vs holdback and reconciliation.
A tire shop with $55,000 a month in deposits has $10,850 a month in debits, a 19.7% holdback equivalent. Its gross margin is 34%, so the payment takes more than half of its margin. The owner asks for a smaller amount at a longer term, which cuts the holdback to 13% and leaves room for the owner to be paid. The percentage made the decision plain.
Source: Merchant Fund Express.
They are related. The payment is a dollar amount; holdback is that payment expressed as a percentage of your receipts. Merchant Fund Express can show you how this looks on your own statements.
Not necessarily. A lower holdback stretches repayment and may increase the total payback.
With a split of card sales it moves with volume. With a fixed debit it is only reconciled if the agreement allows. Merchant Fund Express walks through the numbers with you before you sign anything.
It depends on your margin. If the percentage is close to your net profit margin, the advance is competing with your own cash needs.
Merchant Fund Express gives a same-day decision. Applying takes a few minutes and will not affect your credit score.
