- You agree three numbers before funds are released: the advance, the flat fee that fixes the total repayable, and the percentage of revenue that will be collected.
- The total repayable never moves. Only the time it takes to reach it changes, and that is driven entirely by your trading.
- A revenue share is measured against defined revenue and usually collected by direct debit; a card holdback is skimmed automatically at the acquirer as card sales settle.
- On a £50,000 advance at a 1.2 multiple with an 8 per cent share, you repay £60,000 in total, which on the revenue in our example clears in roughly nine to ten months.
- A bad month reduces the payment rather than triggering a default, which is the core protection the structure offers, but it also extends the term and does not reduce the fee.
Step by step: from application to final payment
Evidence your revenue
You give the provider read-only access to bank statements, card acquirer or payment gateway records, and often an accounting or ecommerce platform. Underwriting reads data rather than forecasts, which is why decisions are quick.
The offer is calculated
The provider sizes the advance against average monthly revenue and, just as importantly, its consistency. It then sets the flat fee and the repayment percentage together, since the two combine to produce an expected term.
You accept fixed terms
The agreement states the advance, the total repayable and the percentage. Check what counts as revenue for the purpose of the split, because definitions vary and refunds, VAT and chargebacks are not always treated the same way.
Funds are released
Usually a single payment into the business account, with no restriction on use.
Collection begins
Depending on the provider this is daily, weekly or monthly, either taken automatically at source from card settlements or collected by direct debit against measured revenue.
The balance clears and the agreement ends
When cumulative collections reach the total repayable, collection stops. There is no final balloon payment and, in a well-drafted agreement, nothing further to do.
Reconciliation: how providers true up the split
Where repayment is collected by direct debit rather than at source, the provider has to estimate before it can collect. Most set a provisional monthly payment based on recent revenue, then reconcile against actual figures once the period has closed.
If actual revenue came in below the estimate, the difference is credited or the next payment is reduced. If it came in above, the shortfall is added. The effect is that the percentage holds true over the life of the agreement even though any single payment may be slightly out.
Three questions are worth asking before you sign. How often does reconciliation happen, since quarterly true-ups can leave a business overpaying for months? What triggers a downward adjustment, and can you request one mid-period if trading collapses? And is the revenue figure taken gross or net of refunds, VAT and platform fees? On a business with meaningful returns, gross measurement can quietly add a great deal to what you hand over each month.
The clause to read twice
Some agreements set a minimum monthly payment underneath the revenue share. Where that exists, the product stops being purely revenue based in the month you most need it to be, because a floor applies regardless of how little you took.
A worked example: £50,000 at a 1.2 multiple
Take a business advanced £50,000 at a flat fee of 1.2, with 8 per cent of monthly revenue collected. The total repayable is £60,000, fixed from day one. The cost of the capital is therefore £10,000, and nothing in the trading that follows changes that figure.
| Month | Revenue | 8 per cent collected | Balance outstanding |
|---|---|---|---|
| Start | £60,000 | ||
| 1 | £80,000 | £6,400 | £53,600 |
| 2 | £72,000 | £5,760 | £47,840 |
| 3 | £95,000 | £7,600 | £40,240 |
| 4 | £61,000 | £4,880 | £35,360 |
| 5 | £88,000 | £7,040 | £28,320 |
Average revenue across those five months is £79,200, so the business is handing over roughly £6,340 a month. At that run rate the remaining £28,320 takes a further four and a half months, giving a total term of just under ten months.
Now read the cost properly. £10,000 on £50,000 is 20 per cent of the sum advanced, but it has been paid over about ten months, and the balance has been reducing throughout, so the average capital outstanding was well below £50,000. Converted to an annual equivalent, the true cost is considerably higher than 20 per cent, which is exactly why we recommend running any offer through the cash advance calculator before comparing it with a business loan. Our worked cash advance example takes the same arithmetic through a card takings structure.
What happens in a bad month
This is the question the product is built to answer, and the answer is genuinely favourable: you pay less. If revenue in month six falls to £30,000, the collection is £2,400 rather than £6,340. There is no arrears letter, no missed payment on the record, and no default, because there was no fixed instalment to miss. For a seasonal business, that is a real and valuable feature rather than a marketing line.
Two caveats follow. The first is that the term extends. Paying less now means paying for longer, and the £60,000 total is unchanged, so a run of weak months turns a ten month facility into a fourteen month one. The second is that the fee does not fall with it. A business that repays slowly gets no discount for the extended term, which in one sense is fair, since it also gets no penalty.
The situation the structure does not handle is revenue stopping altogether. If the business ceases trading, there is no revenue to share, and what happens next depends entirely on the contract: whether a personal guarantee was given, whether a minimum payment clause applies, and how default is defined. Read those clauses before you need them.
Where regulation sits
Revenue based financing advanced to a limited company is commercial funding and sits outside the Financial Conduct Authority consumer credit regime. There is no requirement to quote an APR, no statutory cooling-off period, and in most cases no recourse to the Financial Ombudsman Service. Sole traders and small partnerships borrowing under the relevant threshold can fall within the Consumer Credit Act, which does bring those protections, so the legal structure of your business changes your position.
Many providers hold Financial Conduct Authority authorisation for other activities, and that authorisation is often displayed prominently. It does not mean the advance itself is a regulated product. Checking the Financial Services Register shows what a firm is authorised to do, and the agreement in front of you shows what you are actually signing. We are a comparison and information service, not your legal or tax adviser, and on anything material we would take proper advice first.
