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Merchant Cash Advances Vs Invoice Factoring

The last 5 years have brought a 20% annual growth for the merchant cash advance (MCA) industry. Some companies go for merchant cash advances, while others choose invoice factoring. This article will draw a parallel between these 2 types of business financing. So, let’s go.

Merchant Cash Advances

A merchant cash advance (MCA) is also called a business cash advance. This is an alternative business financing option that’s not a loan. With an MCA, you get a lump sum of money in exchange for a certain amount of the future credit card sales of your business.

You must pay back the advance in installments often on a daily or weekly basis, which will get deducted as a fixed percentage of daily sales. MCAs offer ease of collection, fast funding, and easy requirements.

MCAs are ideal for those who can’t secure funding from a bank and don’t have great credit scores. An MCA is mostly preferred by businesses with lots of credit card sales. However, this type of financing is associated with higher interest rates. Thankfully, there’re reputable alternative online lenders like that offer the cheapest possible rates for merchant cash advances.

FAM is an award-winning high-risk business financing provider in the U.S. that carries an A+ rating with the BBB. Also, FAM is a respectable high-risk payment processor. boasts a 99% merchant approval rate and is famous for its exceptional merchant cash advance.

Invoice Factoring

Invoice factoring is another alternative business funding option and isn’t a loan. In this case, a 3rd party (factoring company) buys your unpaid invoices at a discounted price and provides you with a lump sum of money.

The 3rd party discounts your invoices based on how creditworthy your customers are, your invoice amount, sales volume, and the type of factor. Factoring is ideal for those who need to buy materials, pay labor and cover operating costs in advance of collecting payments from their customers.

However, invoice factoring costs are affected by your invoice factor, application and processing fees from the 3rd party.

As you see, a merchant cash advance and invoice factoring are both alternative funding options for businesses. They offer simple and fast application with minimal paperwork and credit requirements. However, they come with a number of differences you should know.