Merchant cash advance costs should be compared using cash received, total remittance and the timing of collections. A factor rate is a multiplier used to calculate a total amount; it is not an annual percentage rate. The sales deduction percentage is a different number again.
Published by Business Loan Options. Sources checked 4 October 2026.
Section 01
Three numbers that should never be confused
The advance is the amount supplied. The factor rate, where used, multiplies that amount to establish the base total remittance. The collection rate is the share of eligible sales directed towards that total.
In an illustrative offer of £20,000 with a 1.25 factor rate and 15% collection rate, the base total is £25,000 and the funding charge is £5,000. The provider then collects 15% of the contract's sales measure until the amount due is remitted. Extra fees would need to be added separately.
Providers can express pricing differently, including a fixed charge rather than a factor rate. Translate the quote into cash received and total cash due, rather than comparing labels.
| Assumed factor rate | Total before extra fees | Charge above advance |
|---|---|---|
| 1.15 | £23,000 | £3,000 |
| 1.25 | £25,000 | £5,000 |
| 1.35 | £27,000 | £7,000 |
These are calculation examples, not a published provider rate range.
Section 02
Why a factor rate is not APR
A factor rate contains no repayment calendar. Annualised borrowing cost requires the amount and date of every cash flow, including fees deducted before funding reaches the borrower. Two advances with the same multiplier can therefore have different annualised costs.
A £5,000 fixed charge for using £20,000 is 25% of the original advance, but that does not make it 25% APR. The debt or remittance balance reduces as collections occur, and the time the money remains outstanding matters.
For an actual comparison with a loan, request a cash-flow schedule or a suitably calculated annualised measure using the same assumptions for both products. Do not annualise the charge by dividing it only by the headline number of months.
Section 03
Sales deductions and estimated repayment time
The following scenarios assume £25,000 remains to remit, 15% of eligible monthly sales is collected, sales stay flat and there are no extra fees or other contractual payment requirements. The simple estimate divides the total by the monthly collection; real daily sales and timing will differ.
| Eligible monthly sales | 15% collection | Approximate months to remit £25,000 |
|---|---|---|
| £20,000 | £3,000 | 8.33 |
| £30,000 | £4,500 | 5.56 |
| £40,000 | £6,000 | 4.17 |
This is an illustrative constant-sales model, not a promised term or provider payment schedule.
Section 04
Check the sales base and the net amount received
Read what the collection percentage applies to. Your contract may refer to card receipts, platform sales or another measure. Shopify's UK guidance, for example, describes remittances calculated on gross associated sales, including specified charges and taxes. Other arrangements can use a different basis.
In a hypothetical business receiving £30,000 of eligible sales with a 15% collection rate, £25,500 remains before other operating payments. If £26,000 of costs must be paid from those receipts, the business has a £500 cash gap. The initial advance can obscure that gap while it lasts, so model recurring cash flow separately.
If an assumed £500 fee is deducted from a £20,000 advance but £25,000 must still be remitted, net cash is £19,500 and the difference between cash received and total due is £5,500. Compare that net basis with every competing quote.
Sources: Shopify — UK cash advance remittances and early settlement
Section 05
Early settlement, fees and renewal costs
Ask whether an early settlement changes the total charge. Shopify's UK documentation says remitting the remaining balance early does not reduce its financing cost. That is a specific product example; obtain the rule for your own proposed agreement.
For a renewal, list the new headline advance, the existing balance being cleared, every new deduction and the cash that actually reaches the business. A £20,000 new advance clearing an assumed £8,000 old balance supplies £12,000 before new fees, not £20,000 of fresh spending capacity.
Then compare the new total repayment burden with the benefit of the proposed use. The decision should account for how long the business needs the money and whether another finance structure can fund the same purpose more cheaply.
Sources: Shopify — UK cash advance remittances and early settlement
Common questions
Is a merchant cash advance interest-free?
A product can use a fixed charge rather than conventional interest and still have a substantial cost. Compare net cash received with total remittance and the collection schedule.
Is the cheapest factor rate always the cheapest offer?
No. Compare fees, net proceeds, the repayment pattern and settlement terms. Different collection speeds also affect annualised cost.
Do repayments always fall when sales fall?
Only where the agreement uses that sales-linked mechanism. YouLend publishes both variable and fixed debit structures; check the actual offer.
Sources
Primary sources and further reading
Facts and status were checked against the following sources on 4 October 2026. External pages can change. Worked examples use the assumptions stated alongside them.