Advance commission has unfortunately suffered a bad reputation over the last few decades. There is a common misconception that it is a high risk loan, and is only used as a last resort when a company is facing financial ruin and collapse.
This reputation is certainly not true. It is not simply used as a last resort and is in fact not even a loan. It is often used by smart business owners who want to free up their cash flow and strategically invest in ways to grow their business. These days it is commonly used and is a universally accepted way of boosting business growth.
What are the benefits of using advance commission?
Advance commission arrangements are primarily used by real estate agencies that want to improve their cash flow situation rather than have to wait weeks or months for settlement to get paid.
Receiving this cash almost instantly allows real estate agents to focus on their business, the next client and the next sale, rather than worry about finances and how they are going to handle their expenses. A commission advance gives agents the freedom to take the next step in their business, whether that’s a new marketing campaign, an updated website or hiring new staff.
What are the downsides to a commission advance?
While advance commission arrangements have many benefits, there are also a few drawbacks. Most advance commission companies won’t advance your funds when your sale is off the plan or a future development, due to a sale contract being conditional to an advance.
Rates and fees also vary depending on the advance commission company, and these usually differ to banks and traditional lending institutions. However, given that commission advances are short term and don’t require any security, the rates and fees are comparable.
What processes are involved in obtaining an advance?
Applying for a commission advance is a simple process and far quicker and easier than applying for a loan with a bank. Once you close a sale, simply submit an application with a reputable advance commission company. This can normally be done online.
After an initial membership application process, you should receive your advance within a few hours of your application being approved.
What are the misconceptions with an advance?
Commission advance has been around for more than 30 years, yet because it is not widely known about outside the real estate industry, people assume it is new and risky or there is a catch.
The biggest misconception is that advance commission is expensive and has high rates and fees. This is generally not the case, but it does pay to shop around because advance commission agencies all have differing rates.
People also wrongly assume that advance commission should only be used as a last resort or a bail out option when an agency is desperate for cash. This is certainly not the case, with many profitable and financially healthy agencies using advance commission services regularly. Leading franchise groups, boutique agencies and independent companies frequently use the service.
Another misconception is that a bank overdraft is a more reliable source of funding and is lower risk. Applying for a bank overdraft is often a long, tiresome and rigid process, and usually requires some property as security. Once you’re approved, it can still take weeks for you to receive your cash payment.
In comparison, an advance commission is a fast and easy process that lets you access your cash the same day.
What are the costs involved with a commission advance?
Different commission advance companies will charge different rates and fees, so it’s a good idea to choose one that charges one fixed rate and doesn’t have hidden extras like administration fees and a fee for every transaction. This way, you’ll know up front what you will need to pay.
Also choose a company who will give you 100% of your commission. Some will only advance 80 – 90%. The fee you pay will depend on the length of the property settlement, and are commonly charged as a percentage of your commission or at a daily rate per $1000 lent.
When is an advance payment made?
Most companies will pay your advance into your bank account within a speedy 4 hours of your application being approved. Generally, all you need to do to be approved is to have a completed sale with an unconditional contract, and a deposit paid.
When does an advance need to be repaid?
Your advance needs to be repaid at settlement and as soon as you have received your commission. It’s worthwhile finding an advance commission company who will allow you to repay your advance early at no extra cost and receive a credit on fees. This way, a fast settlement doesn’t leave you out of pocket with fees.
What happens if the sale falls through?
If your sale happens to fall through before settlement, you have two options:
- You can repay the advance you have received along with any fees accrued.
- You can keep the advance and assign it to another transaction. For this option, the replacement commission needs to be of an equal or greater amount.
As more and more businesses discover the advantages of using advance commission, it is losing its bad reputation. A growing number of businesses are realising that receiving an advance is an affordable way of sustaining and growing their business. The use of advance commission is rapidly growing because of the great benefits and the simple application process involved.
Why not consider advance commission as a workable solution for the cash flow of your business?