Why Merchants Need a Payment Processor Offering Next Day Funding

Fast access to cash is crucial for all types of businesses, and the smaller the business, the more important it is. But the traditional funding process often sees merchants wait three business days, or occasionally even more, before getting access to the money from their sales. Next day funding offers a solution to that problem that sees merchants get their money in as little as a single day, improving liquidity and offering a multitude of benefits in the process. 

Traditional Funding vs. Next Day Funding

To understand just how beneficial next day funding can be, it’s important to understand how it differs from the traditional funding process. While both are similar in many ways, the differences demonstrate not only why next day funding is important, but also why it isn’t available from all processors or to all merchants. 

Traditional Funding with Standard Holds

The traditional funding process includes a number of steps. First, a merchant submits a batch of credit card transactions – a large group of card sales from throughout the day that are submitted together. Those transactions are sent to the merchant’s payment processor, where they begin the settlement process – the process of actually verifying the sales and retrieving the funds from the customers’ issuing banks. Only once that process is complete can a processor issue payment to the merchant. While all that is happening, the merchant’s funds are subject to a static waiting period set by the processor, generally of one to three business days, known as a standard hold. 

Standard holds exist for two reasons. First, they give the settlement process time to complete. But they’re also an important risk management tool for payment processors, ensuring that, should anything go wrong with the settlement process, the funds haven’t already been sent out, especially to a fraudulent or problematic merchant. Either way, no matter how quickly the settlement process itself may go, a merchant subject to a standard hold is going to wait up to three business days to receive their money.

Next Day Funding

With the next-day funding model, the entire standard hold is thrown out the window. The merchant is given a cutoff time, and the funds from any transactions batched before that time will be in the merchant’s account the morning of the very next business day. If a merchant with a 5 PM cutoff time gets a batch in before the deadline on Monday, they’ll have their money Tuesday morning. It’s as simple as that.

The settlement process still takes time to complete, and the risk still exists, but processors accept both and choose to pay out merchants early, out of their own pockets. It’s a massive change from the standard hold funding model, but it exists because processors understand how important it is to recognize and acknowledge merchants with a long and outstanding processing history – as a reward, as a way to build stronger relationships, and as a competitive tool. 

The Benefits of Next Day Funding

A three-day wait may not seem like much, but it’s actually a huge deal, and waiving it represents a valuable recruiting and retention tool for processors because of the significant benefits next day funding offers to merchants. Those benefits are widespread, but among the most notable are healthier cash flow, improved ability to plan, and additional peace of mind. 

Healthier Cash Flow

Positive cash flow is arguably the most important indicator of a company’s health. Cash flow keeps the lights on. It enables companies to meet their financial obligations, both short-term and long. It’s also a huge challenge for many merchants, and the standard hold doesn’t help. Next day funding speeds up a merchant’s access to cash and therefore helps improve their liquidity. That might not matter as much to a large national chain with ample cash reserves, but to small businesses, getting their money three days earlier can make a big difference. That’s especially true for merchants that do primarily weekend business, like bars, restaurants, and theaters – merchants who potentially have to wait five calendar days to get their money under a three-day standard hold. 

Improved Planning and Forecasting

Knowing there will always be a steady supply of cash enables merchants to forecast more accurately and plan better for short-term expenditures. For instance, a bar expecting a big holiday weekend needs to know it’ll have the necessary cash on hand to bring on extra staff, if necessary. The less liquid they are, the harder it is to make those kinds of plans.

Greater Peace of Mind

Next day funding helps ensure merchants will always have enough money on hand for short-term plans, but also for unexpected emergencies, which can be disastrous or even fatal for a small business when cash is in short supply. With next day funding, merchants can sleep better knowing that, even without an enormous emergency fund, the cash from their sales will never be more than a single business day away. When pipes burst or disaster strikes, the importance of that kind of fast access to cash can be the difference between an easy fix or a nightmare that sees a merchant go deeper into debt in the best case scenario. 

BAMS offers next day funding to many of our merchants, and our 9 PM EST cutoff time represents one of the latest in the payments industry. Any transaction batched by cutoff will be available in the merchant’s account by 7 AM EST the following business day – as little as ten hours later. BAMS merchants also get access to a wide variety of value-added services and the most competitive pricing in the industry. 

To find out more about how a BAMS merchant account can slash your monthly bill and get your money into your account faster, get started with a comprehensive five-point price comparison today.