Invoice Factoring vs. Merchant Cash Advance

Find out which is best for you.
Having the right kind of capital for payroll, taxes, supplies and various expensespayroll, taxes, supplies and various expenses that come along with your business is critical. Owning a business means you’re being sent advertisements for small business cash advances and higher risk loans left and right. These companies promise fast access to cash, guaranteed lightning fast approval, and funding in just a few short days. You have to ask yourself if these loans are too good to be true.

At some point in time, all businesses will need some sort of funding. However, not all funding sources are the same. To get the capital your business needs without the huge risk factor and sky high fees, it’s imperative you research the pros and the cons of all funding sources you consider obtaining your funding through. During this post, we’ll talk about what a merchant cash advance is and how it compares to invoice factoring.

Let’s talk MCA.

A merchant cash advances, or “MCA” for short, is an alternative financing source that provides a business with a one-time lump sum of cash in exchange for a set percentage of their future sales. The business would then pay back the loan dailyaily by having a percentage of their credit and debit card sales deducted from their account, until the amountouch of the MCA is paid in full. This kind of cash advance generally has higher interest rates, but could be the right fit for certain businesses.

What’s the Difference Between MCAs and Invoice Factoring?

Just like MCAs, invoice factoring is another type of alternative funding that offers a business quick cash, without the hefty approval requirements of traditional bank loans. However, there are a few major differences that could make invoice factoring a better funding source for you and your business.

The Risk Factor Is Lower

Merchant cash advances generally come with a much higher risk factor when compared to invoice factoring. While MCAs charge you based on your projected sales, invoice factoring companies purchase your existing invoices from you. Because a merchant cash advance is based around your projected future sales, if you miss your sales mark you could end up with a pretty hefty payment with a high interest rate. Since invoice factoring works with your current sales, there’s no chance of that happening.

Lower Costs

MCA providers will charge you the amount of the payment along with an insanelya risk based high interest rate. Many invoice factoring companies only charge a small percentage of the invoice total as interest, leaving your business with less stress about how much money it owes to your lender.

Full Service

Most factoring companies provide “full service” programs, meaning they credit clear new or potential customers, audit your invoices for billing errors, perform necessary collection efforts, post payments to your invoices and usually provide online access to your complete account reporting for full disclosure.

Before considering taking out a merchant cash advance for your business, be conscious of the short and long term impacts. If you’re in a situation that makes their unappealing interest rates seem almost worth it, remind yourself that anything that looks too good to be true, usually is. If ifIf you are looking for a long term business relationship to help you grow your business without incurring hefty debt, then invoice factoring is your best option. If you’re interested in exploring your invoice factoring options, head over to GMA Factor and request a quote.

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