What is an Attrition Guarantee on a Merchant Residual Buyout?

Negotiating an attrition guarantee is one of the most overlooked strategies for securing the best multiple when negotiating a merchant residual portfolio sale. If you play your cards right, and guarantee the purchaser of your portfolio that merchant attrition will remain low – say 10% a year – you can maximize the portfolio payout.

Of course, you can’t just offer a guarantee. You need to be willing to continue providing good service on the accounts after the sale closes.

Say, for example, you have a portfolio generating $3,000 a month in residuals and the annual attrition rate is 10%. Consider seeking a 12X payout upfront ($36,000), with a second payout in 24 months lof 8X, provided the portfolio is still generating an average of $2,400 in monthly residuals.

Of course, if you are unable or unwilling to support merchants and guarantee low attrition following the sale of a merchant residual portfolio (for example, because you’re planning to retire), there’s no sense in banking on future payouts tied to attrition guarantees. Negotiate a one-time up-front payment that you’re happy with – say 15X – as that may be all the money you’ll get for your merchant residual portfolio.

If you opt for negotiating an attrition guarantee, be sure the guarantee is based on residuals, not stick counts. In other words, don’t guarantee that the portfolio will not lose more than X% of merchant accounts. Guarantee that the portfolio will not lose more than X% of the residual flow. Most portfolio purchasers are happy to make future payments for purchased portfolios that experience residual attrition rates of 10% or less.

Are you an ISO or agent looking to sell a merchant residual portfolio? Whether you’re ready to sell today, or just wondering what your options are for the future, you’re going to want to get Guide to Selling Merchant Residual Portfolios.

CLICK HERE  to get your free copy!