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Merchant Cash Advance vs Invoice Factoring: The Differences

Merchant cash advances (MCAs) and invoice factoring are both alternative financing options that provide your business with advanced cash quickly. Both of these alternative financing options also have much less strict conditions than traditional banks, making it easier for start-ups and small businesses to qualify.

However, these options come with significant differences in process, design, services rendered, and of course, overall cost. Here are the differences between two financing options:

Merchant Cash Advance

Merchant cash advances provide a lump sum of cash in exchange for a percentage of all future sales, including your future credit card and debit card sales, until the debt is paid. The cash can be advanced quickly, usually within a few days, and qualifying is mostly dependent on your average monthly sales within the past 6 months.

MCAs can seem helpful to B2C businesses that rely on credit card payments that fail to qualify for most other types of financing, but the high cost can be difficult to reconcile.

MCAs will have high interest rates and fees. Because merchant cash advances are based on estimates of your future sales, if your future sales do not meet your projections, then the time it takes to repay the MCA could be much longer than expected. More often than not, borrowers will end up paying back significantly more than the initial advance.

Businesses should be careful with MCAs and consider them as a last resort option.

Invoice Factoring

Invoice factoring advances you most of the cash from your unpaid invoices very quickly. Factoring companies will buy your outstanding invoices and will assist in collecting payment from your customers. Because it takes customers several months to pay invoices, invoice factoring is a helpful financing option that can bridge the funding gap. In addition, it is easy for businesses to qualify for invoice factoring.

Compared to MCAs, invoice factoring generally has lower costs. Factoring companies will deduct a percentage from the outstanding invoice as a fee for their services and charge interest on the advanced amount. These total fees and interest are usually cheaper than those of the MCAs.

Invoice factoring is also less risky than MCAs. Because a merchant cash advance is based on your estimated future sales, if you miss your sales projection, you could end up with a pretty hefty payment with a high interest rate and this could cause problems with your cash flow. Since invoice factoring works with your current sales, it is less likely that you will have the same cash flow problems.

Finally, invoice factoring will often include additional time-saving benefits such as billing and invoice collection services, whereas a merchant cash advance will only provide cash and no other services or benefits.


Compared to an MCA, invoice factoring is an inexpensive and more comprehensive financing option than merchant cash advance. Given their high costs, MCAs should generally be considered as a last resort option for additional funding.

Accel Business Funding has helped many businesses through our invoice factoring services.


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