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Average daily balance ADB
Also called ADB, average balance, average ledger balance.
The mean end-of-day balance in the operating account over a period, used as the main test of whether a business can absorb a daily or weekly debit.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
What it means
Add each day's closing balance across the statement period and divide by the number of days. Funders compute it per month from three to six months of statements, alongside the lowest balance in each month and the number of days the account went negative.
It is the single most predictive figure in cash-advance underwriting because it measures cushion rather than volume. A business turning over a large monthly figure that ends most days near zero cannot absorb a fixed debit; a smaller business that holds a steady balance can. Funders commonly size the daily payment as a fraction of average daily balance for exactly this reason.
It also reveals what the profit and loss statement hides. Owner draws, another funder's debits, payroll timing and slow customer payment all show up in the balance line and nowhere else.
Interpretation depends on how the business banks. A company that sweeps cash to a savings or investment account nightly, or spreads activity across several operating accounts, will show a low average daily balance that misrepresents its position. That is fixable by submitting all accounts; it is not fixable after a decline.
Where this one catches people
Average daily balance is not the average of your monthly opening and closing balances, and it is not your monthly deposits. A business can deposit 200,000 a month and hold an average daily balance of 3,000 because everything goes out as fast as it comes in. Underwriters are looking at the second number, and it is the one that determines the payment you will be offered, not the first.
Worked through
An account holds 20,000 for 10 days, 5,000 for 15 days and 1,000 for 5 days in a 30-day month. Total balance-days = 200,000 + 75,000 + 5,000 = 280,000; divided by 30 gives an average daily balance of 9,333. A 1,000 daily debit against that cushion is far more aggressive than the monthly deposit total would suggest.
Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.
Where you will meet this term
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Average daily balance — common questions
What does average daily balance mean?
The mean end-of-day balance in the operating account over a period, used as the main test of whether a business can absorb a daily or weekly debit.
Where does average daily balance catch people out?
Average daily balance is not the average of your monthly opening and closing balances, and it is not your monthly deposits. A business can deposit 200,000 a month and hold an average daily balance of 3,000 because everything goes out as fast as it comes in. Underwriters are looking at the second number, and it is the one that determines the payment you will be offered, not the first.
Is average daily balance the same as an interest rate?
Average daily balance is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does average daily balance apply to?
Merchant Cash Advance, Working Capital, Business Line of Credit, Revenue-Based Financing.
Is there a worked example of average daily balance?
Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.
What else should I read alongside average daily balance?
Average monthly deposits, Bank statement underwriting, Cash flow, Holdback, NSF fee.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.