What are POS Advances, and How Do They Work?

What are POS Advances, and How Do They Work?

With the proliferation of online commerce, a type of financing has developed and grown that barely had a place a little over a decade ago; we refer to POS advances.

It is a form of financing based on the income received by POS or any other online payment method, such as Paypal or Google Pay. 

Depending on the sales volume through these channels, the company can obtain more or less financing. However, it will also depend on other factors, such as the average ticket and the recurrence of sales.

The important thing is that it will not depend too much on the financial statements or the company’s age, which allows access to this type of financing for companies that have just started their activity and already have their first sales. This modality can be found in two kinds of entities, which operate differently.

Traditional financial entities: Not all commodities have this option, but the main or most relevant ones do. Thanks to this formula, they can grant financing to younger companies that cannot be financed with other products. The condition they impose is to have the POS in the entity itself to be able to know the movements and base the financing on them. 

Fintech: Thanks to new technologies, Fintech has revolutionized many ways of operating, and the POS advance is one of them. Fintechs use technology to connect all of the company’s electronic means of payment on a single platform controlled by Fintech that uses it to meet the loan installments and return the difference to the bank account. Of the company. 

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Having control over collections reduces the risk of non-payment. It allows the company to access a form of flexible financing with admission criteria that are totally different from those of other forms of funding.

How Does the POS Advance Payment Work?

As we said, the financing is based on the behavior of the charges received by card or online payments; usually, between 3 and 6 months of operations are taken into account. With it is defined:

The maximum amount of financing or loan that can be granted. Usually, it will be a % of annualized billing. The financial cost of the operation will generally be a fixed commission for the loan. The percentage of daily sales that will go to the loan. 

Instead of establishing a calendar in time to repay the loan capital, a portion of daily sales by card or online payments are used, usually between 10% and 30%. 

As we do not have an established repayment term, we will not know the actual financial cost (annual IRR) until the end of the loan.

In summary, it is a perfect form of financing for young companies that do not have a financial history and have closed the main financing channels. 

However, the level of financial resources that they can obtain through this channel is limited to their capacity . to generate charges via card or online payments.

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