How to Sell a Portion or All of Your Merchant Residual Portfolio

February 05, 2021

Has your merchant portfolio become lucrative? If so, you might consider using it as leverage for cash. One simple way to do this is to sell its residuals or monthly revenue. Whether you need cash for an emergency or want to sell it to get added funds for a new business venture, selling your residual income could be an easy solution and a smart financial decision.

What is a Merchant Residual Buyout?

Simply put, when you sell your merchant residual portfolio, you are selling your rights to future residual payments from your portfolio. This means that the new owner, instead of you, will receive the future residual income that is generated from the merchant portfolio.

You can choose to sell your entire merchant residual portfolio or just a portion of it. This can be determined by your selling a particular amount or specific accounts from the portfolio.

Who are the Potential Merchant Residual Buyers?

There are industry insiders that might be interested in investing in a merchant residual portfolio. The ISO where accounts are boarded is the most common purchaser of merchant residual portfolios. This is because merchant residuals are a quick and easy way for ISOs to build their business. It doesn’t require a lot of marketing or sales efforts, and they have the historical data already to give them insight on whether it would be a smart investment. A smart business move, with the purchase of a merchant residual portfolio, the ISO immediately enlarges its direct residual revenue from existing customer base.

The size of your portfolio is not a hindrance to your ability to sell. There are buyers looking for residuals as low as $3k a month and others that want to invest in a larger portfolio that yields $300k per month.

What Makes Your Merchant Portfolio Attractive to Buyers?

If you’re looking to sell your merchant portfolio residuals, there are a few things that will make it more attractive to potential buyers. Along with attracting buyers, these attributes will also increase the value of your portfolio when selling to investors. This includes:

● Merchant attrition rate.
● The age of the portfolio.
● Basis Point Spread
● Diversity in the portfolio (SIC/MCC).

Of course, the 3, 6, and 12 month average residual income will greatly affect the amount that an investor is willing to pay for your merchant residual portfolio. To do a valuation, a potential buyer will need to analyze the most recent 12 or 24 monthly residual data reports. They will also want to see your ISO/Agent agreement(s).

How Does Selling Merchant Residuals Work?

After providing the 12-24 month residual files, the Buyer will submit an LOI or Soft Offer. Once accepted by, a Purchase Agreement will be provided to the Seller detailing the upfront payout, as well as the, 12 and 24 month payouts (traditionally paid out based on attrition levels in the first 2 years after upfront payment), and any servicing clauses that may be involved. The Seller will then request a Consent for Assignment of Residuals from their ISO and/or Processor. Upon signature of the Purchase agreement (between the Seller and Buyer), and the Consent for Assignment (between the Seller, Buyer, and ISO and/or Processor), the deal is executed and upfront payment is wired to the Buyer.

If you find yourself strapped for cash, know that a merchant residual buyout is a smart and clever option. Before you apply for a business loan or buy a new piece of equipment on credit, consider selling all or part of your merchant residual portfolio.

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