Can I pay off a cash advance early, and will it save me anything?

Yes, you can usually pay off a merchant cash advance early, but it may save you nothing. The factor rate fixes the total payback on day one, so unless your contract includes an early payoff discount, settling early means paying the full remaining balance. The only way to know is the contract, or a payoff figure in writing.

Why loans and advances differ here

On a loan, interest accrues over time. Pay early and you stop the clock, so you save the interest you haven't yet run up. On a fixed-factor advance, the cost isn't accruing, it was set at the start. $10,000 at 1.35 is $13,500 owed, whether you take 6 months or 6 weeks.

New York's disclosure rules make providers say this plainly. Where paying early still means paying the fee, the disclosure reads: "If you pay off the financing faster than required, you still must pay all or a portion of the finance charge". Where it doesn't, it says you "will not be required to pay any portion of the finance charge other than unpaid interest accrued." Any extra prepayment fees must be listed too.

The worked number

Take $10,000 at a 1.35 factor over 6 months, paid daily: 126 payments of $107.14, $13,500 in all. After 3 months, you've made 63 payments, about $6,750, and about $6,750 is left.

• No discount: you pay about $6,750 to settle. Total cost is still $3,500. Because you had the money for 3 months instead of 6, the yearly cost of the deal goes up, not down.
• With a discount: if the contract cuts the remaining cost when you settle early, your saving is whatever it says, and nothing more.

Sterling's take: paying early with no discount is buying back your cash flow, not saving money. Sometimes that is still worth it.

When paying early makes sense anyway

• The daily debit is squeezing your account and you have cash from a better source.
• You're refinancing into cheaper, longer money and need this one cleared.
• You want the provider's claim on your receivables gone before applying elsewhere.

Questions to ask the provider

1. Is there an early payoff discount, and on what dates or at what balances?
2. What exactly is the payoff figure today, in writing, including any fees?
3. Will you stop the daily debits the day you receive it?
4. Will you file a UCC termination statement once it's cleared?

On that last one: under UCC Article 9, once nothing is owed, a secured party that gets an authenticated demand from the debtor must file or send a termination statement within 20 days. Make the request in writing.

What to do next

Get a written payoff figure and compare it with what you'd pay if you just let the advance run. If you're paying it off with a new facility, put both into the offer checker so you know the new money is actually cheaper, and read how to refinance an advance first.