Head to head
Invoice factoring vs Merchant cash advance
Both convert future money into cash today, and both are available to businesses banks decline. Factoring sells a specific asset you already own; an advance sells revenue you have not earned yet.
| Invoice factoring | Merchant cash advance | |
|---|---|---|
| Typical amount | $10,000 to $10 million+ | $5,000 to $500,000 |
| Cost | 1%-5% per 30 days of the invoice face value | Commonly 40%-350% APR equivalent |
| Time to funding | 1 day to 1 week after setup | Same day to 3 days |
| Term | Per invoice, typically 30-90 days | 3-18 months, variable by revenue |
| Relative expense | $$$$ | $$$$$$ |
Cost bands are editorial judgements expressed in APR-equivalent terms so products quoting factor rates and discount fees can be compared with products quoting interest. They indicate relative expense, not quotes. Methodology.
Invoice factoring
Usually chosen when
- You invoice other businesses on terms and the receivable already exists
- Your customers have better credit than you do, which is what the factor underwrites
- You want the cost tied to a specific invoice rather than to all future revenue
Merchant cash advance
High costUsually chosen when
- Revenue is card-based or consumer-facing, so there are no invoices to sell
- The need is immediate and there is no receivables ledger to underwrite
Common questions
- Will my customers know I am factoring?
- Under notification factoring, which is the norm, yes. They are told to pay the factor directly. Non-notification arrangements exist but generally require stronger credit.
Other comparisons
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