Merchant Cash Advance vs Invoice Factoring
Short answer: Factoring fits cash tied up in unpaid invoices. You sell specific invoices and your customers pay the factor. A merchant cash advance fits businesses with daily sales: you sell a share of future sales and repay from deposits.
Short answer on MCA vs invoice factoring: factoring fits cash tied up in invoices; an advance fits sales that come in daily.
How does an MCA compare with invoice factoring?
Both are sales, not loans, but of different things. The table shows how they differ.
| Feature | Merchant cash advance | Invoice factoring |
|---|---|---|
| What is sold | A share of future sales | Specific invoices already issued |
| Who pays it back | The business, through a payment or holdback | Your customers pay the factor |
| What sets the cost | Factor rate and fees | A discount or fee on each invoice, often by how long it stays unpaid |
| Whose credit matters | Mostly the business's deposits | Mostly your customers' ability to pay |
| Common fit | Card sales and steady deposits | Business-to-business invoices on terms |
| Customer contact | Customers usually are not told | Customers are often told to pay the factor |
| Disclosure forms | Some states require one with the offer | California's disclosure page names factoring providers |
When does each one fit?
Factoring fits when cash is tied up in invoices to reliable customers. An advance fits when sales come in daily and invoices are few.
Trucking, staffing and wholesale
These businesses bill other businesses and wait to be paid. Factoring is common there, and funders often ask about it. See Trucking.
Factored receivables in an advance file
If invoices are already factored, those payments go to the factor. An advance funder will read what is left.
The same receivables sold twice
Selling receivables to a factor and to a funder can conflict. The factor's filing and contract may forbid it.
Checking the factoring agreement
Look for terms on other financing and on liens. Ask the factor before taking an advance.
Restaurants, salons and retail
Card sales businesses rarely have invoices to factor. An advance is the more common fit. See Restaurants.
FAQ
Which costs more, factoring or an advance?
It depends on the terms and how long invoices stay unpaid. Compare the total fees with the cash you receive for each. Fees on factoring can grow the longer a customer takes to pay.
Does factoring check my credit?
A factor mostly weighs how reliably your customers pay their invoices. Advance funders mostly weigh deposits. Ask each one how any credit review works before you sign.
What is the wait before each can start?
Factoring setup can take time for customer checks, then each invoice moves on its own. Advance timing depends on the funder. No timing is promised.
Can I get an advance if I already factor my invoices?
Sometimes, but the factoring agreement may forbid it. Funders will also see factor payments in your statements. Read the agreement first.
Is factoring a loan?
Factoring is usually set up as a sale of invoices. A merchant cash advance is also written as a sale. Whether a court treats either as a loan depends on the terms.
Next step
Owners with steady deposits can Apply now and see advance offers. Afterfirst shops advances; it's not a funder or a factor.
Call 877-FUND-654What do the two cost in dollars?
Example: $50,000 of invoices are due in 45 days. Say a factoring company advances 85%, or $42,500, and charges 3% for each 30 days the invoices are open. At 45 days the fee is about $2,250, and the remaining $5,250 comes back when customers pay. A merchant cash advance for the same $42,500 at a 1.30 factor pays back $55,250, a cost of $12,750, and it doesn't depend on who your customers are.
Questions owners ask about this
Which costs more, factoring or an advance?
It depends on the terms. Compare the dollar cost for the same amount and time.
Does factoring check my credit?
Factors focus more on your customers' credit.
Can I get an advance if I already factor my invoices?
Sometimes, but the same receivables can't be sold twice. Tell every funder.
Sources
- California DFPI, Commercial Financing Disclosures: the SB 1235 page, which addresses factoring providers by name, behind the Disclosure forms row in the MCA vs invoice factoring table.
Cost, credit, speed and stacking
Cost
Credit
Speed
Stacking
Send one file.
See what fits.
Call 877-FUND-654 with questions.