Invoice factoring vs merchant cash advance
If the business invoices other businesses, factoring is almost always the cheaper answer — it advances money the business has already earned, priced from 1.5% per 30 days, and creates no debt. A merchant cash advance is priced on a factor rate of roughly 1.15 to 1.45 and is repaid from future revenue, which makes it the option when there are no commercial receivables to sell. The dividing line is simple: do creditworthy businesses owe you money right now?
Start an applicationSide by side
| Best for | Invoice Factoring: B2B businesses with slow-paying clients — Merchant Cash Advance (MCA): Fast working capital, cash-flow-driven approval |
|---|---|
| Typical range | Invoice Factoring: $50K – $5M — Merchant Cash Advance (MCA): $10K – $1M |
| Speed to funding | Invoice Factoring: 3–7 days setup, same-day after — Merchant Cash Advance (MCA): 24–72 hours |
| Cost | Invoice Factoring: 1.5–4% of invoice — Merchant Cash Advance (MCA): Factor 1.15–1.45 |
| Collateral | Invoice Factoring: A/R is the collateral — Merchant Cash Advance (MCA): Unsecured |
Choose Invoice Factoring when
- You invoice other businesses on 30 to 90 day terms
- Your customers are creditworthy — larger companies, government, established mid-market
- You want funding that scales automatically as sales grow
- You would rather not add debt to the balance sheet
- Your own credit is bruised but your customers' is not
Choose Merchant Cash Advance (MCA) when
- Revenue is consumer-facing — retail, restaurants, e-commerce — so there are no B2B invoices
- You need capital in 24 to 72 hours and cannot wait for a facility to be set up
- Deposits are consistent even though credit or filed financials are weak
- The amount needed is modest and the payback horizon is short
When both make sense
They are not mutually exclusive. A business with both commercial receivables and card revenue can factor the invoices and use an advance to bridge a specific gap — provided the combined repayment is modelled properly rather than stacked blindly.
Frequently asked questions
Which one is cheaper?
Factoring, in almost every case where it is available. Factoring fees start around 1.5% per 30 days against an invoice you have already earned. An MCA at a 1.20 factor repays 120% of the advance regardless of term, which annualises far higher on a short payback. Compare both as total cost of capital — total repaid minus amount received.
Does either one create debt?
Factoring is the sale of an asset, so no debt is created and there is no fixed monthly payment. An MCA is not a conventional loan either, but it is an obligation repaid from future revenue and it does constrain cash flow while outstanding.
Will my customers know?
With notification factoring, yes — invoices direct payment to a lockbox. Non-notification factoring keeps customers paying your business as normal. An MCA involves no customer contact at all, which is sometimes the deciding factor.
Related
- Chartered bank term loan vs Business Line of Credit — A chartered bank term loan is cheaper and should be your first call if the business is bankable — two or more years of history, clean financials and strong credit.
- Term Loan vs Merchant Cash Advance (MCA) — A term loan is the cheaper instrument and the right one whenever the file can carry it — fixed payments, a defined end date, and pricing quoted as an annual rate.
- Equipment Financing vs Term Loan — If the money is going into a specific piece of equipment, finance the equipment.