This blog is going to show you what the actual, economic value of “Next Day Funding” is, so you can make an informed decision as to whether and how much it matters to your business.

We frequently have business owners ask us about receiving next day funding. This is a practice through which funds from today’s sales are deposited in a bank account tomorrow, rather than the more typical second business day.

Processing platforms and processors may or may not have the capability to provide next day funding.  And for those that do, the “cutoff” time for batch closing may be such that it creates a mismatch between the business’s total receipts for a given calendar day and the deposit that is made for that day.  For example, a business in California open until 7 PM local time may have to close their batch by 6 PM Eastern time, leaving 4 hours’ worth of sales on the next day’s batch.  This creates extra work for those keeping the books.

Given it may be available from one provider and not another, let’s look at the real value of next day funding so you can better compare offers from various providers.

The difference between next day funding and second day funding essentially means your funds will reach your account one day earlier.  Let’s say you sell $1,000 of merchandise on Monday.  With next day funding, assuming you close before the cutoff, you will receive those funds on Tuesday, rather than Wednesday.  So you have $1,000 available to earn interest for one day.

On Tuesday, you again sell $1,000 worth of merchandise, and again, with next day funding, you have that money available to earn interest one day earlier than the alternative.

Some days you may sell less than $1,000, some days you will sell more.  But on average, for this example, you sell $1,000.  The higher sales days are offset by the lower sales days. And if you roll this on through an entire year, what you find is that you have an average day’s sales (for the sake of this example, $1,000,) available to earn interest for 365 days.

Now, what can you earn in interest?  At the time we’re writing this in Fall 2018, a five year CD will earn you 3% annually.  We don’t really think you’re going to tie up that average days’ sales for five years, but you could. And since longer maturity CDs pay more, we’ll go with 3% in order to make next day funding look as good as possible.  What this would earn you per year is:

3% annual rate * $1,000 sales receipts = $30

So as compared to second day funding, for a business selling roughly $365,000 in merchandise per year (average sales per day of $1,000,) the value of next day funding is $30.

Since different providers may offer different rates, how can we translate this savings into a difference in “discount rate,” the discretionary part of what you’re paying to your payment processor?  The way to determine that is simply to divide the savings by annual sales:

$30 extra investment earnings from next day funding / $365,000 annual sales = .008%

In other words, a processor  who is not offering you next day funding would only have to offer you a discount rate just 0.008% lower than that offered by a provider able to offer next day funding in order to be “even” economically.

We understand that emotionally, it seems “unfair” for a bank to take longer to put YOUR money into your bank account. But as every successful business owner knows, removing emotion from business decisions is a key to long-term success. And passing up lower rates because the provider can’t offer next day funding may be an emotionally-driven, BAD decision for your business. All things being equal, the value of next day funding is typically very small, annually.

We work with a variety of providers in order to provide our clients with the best solution to their particular set of processing needs.  Funding speed typically, for reasons outlined in this blog, comes far down the list of priorities. We’ll be delighted to discuss funding speed and its value/cost with you in the context of your business.  Just call or click on the contact field to get in touch.