Canadian Merchants Beware (consumer alert)
Lock-Box/Trust Accounts/Pass Accounts
This is where a merchant funding company requires merchants to open a new bank account in order to receive their funding. This account is controlled by the funding company until the advance has been repaid in full. Here's how it works.
1) You must have your processor deposit your daily batch outs to this new account that is controlled by the funding company.
2) The funding company takes their daily withholding from the money deposited into this account and then transfers the remaining amount to the merchant. In many cases this causes a batch delay of 3-5 business days putting the merchant in a tighter cash flow situation. It also restricts the access the merchant has to their own money.
Also, it is important to understand that if you enter a “lock-box” situation it is unnecessary, under any circumstance to switch your existing merchant processor. We have heard of funding companies that sell a “lock-box” program insisting that merchants change their processor in order to receive funding. This is done because they are trying to make money on your processing and again, it is completely unnecessary!
Application Fee and/or Professional Service Fees
It's simple; both of these fees are unnecessary cash grabs for the funding company and based solely on greed.
1) The first is where the funding company asks for an upfront application fee that is non refundable whether the merchant is approved or not. THERE IS NO APPLICATION FEE.
2) The second is where the merchant funding reseller charges a 5% to 20% professional fee on the funded amount and is debited from the merchant's bank account on the day of funding. This is an unauthorized debit that is based on greed and total disregard for the merchant's well being.
We have even heard of scenarios where the merchants were debited before receiving the money, using up all available cash flow and negatively affecting the merchant's business and credit.
Please understand that there are many reputable Merchant Funding Companies out there offering Merchant Cash Advances and we are not discouraging you from dealing with any of them. We are simply trying to educate and protect the market to ensure that you have all the facts before making your decision.
Should you require our assistance please do not hesitate to contact us at 1-866-299-0101.
Director of Operations
Synergy Merchant Services Inc.