The differences between Invoice Factoring and Merchant Cash Advance

Anyone who owns or runs a small business is likely familiar with those financing offers that arrive in the mail and your electronic inbox.  Many guarantee fast access to small business cash advances through a variety of risky-sounding terms.  Since most businesses will need to raise capital at some point to cover unforeseen issues or to finance growth, here is some information about those offers as they compare to invoice factoring.

What is a Merchant Cash Advance?

A merchant cash advance may also be termed a merchant card advance, or “MCA.”  This alternative financing agreement can deliver a specified amount of capital to your company for the promise of future sales.  The business repays the loan through monthly payments, which are a percentage of the company’s credit and debit card revenue. This type of financing usually has extremely high interest rates, and should rarely be a first choice for business capital.

Merchant Cash Advance vs. Invoice Factoring

Similar to a MCA, invoice factoring provides businesses with easy access to cash. However, here are several reasons why invoice factoring could beat out a MCA as the better cash solution.

• Faster Approval. While merchant cash advances promise quick approval, they may have some road blocks that can leave you out in the cold.  Invoice factoring offers both fast approvals and quick funding without strict credit requirements.
• Less Risky. MCA’s charge you based on anticipated sales, while invoice factoring is based on invoices that you already have on hand.  Clearly, your risk is less with factoring.
• Better Loan Terms.  The terms are generally better with factoring arrangements.  Not only can you select a solution that matches your need, but the overall cost of financing is much less with factoring than with a merchant cash advance.
• Additional Services.  Often, when you use a factoring service, the company will take over the billing and collections functions for those outstanding invoices.  This is one less function that your business needs to worry about.

There are several ways to raise fast capital for your business. Before you make a choice that you might regret, be sure to weigh the pros and cons, taking a close look at the advantages of invoice factoring options.