Merchant Cash Advance Versus Invoice Factoring

A merchant cash advance is a fantastic and relatively new financial product that is an extension of invoice factoring. The two products share many similarities but are very different in one important aspect. They both are similar in the idea of selling receivables to a business lender at a discount. Where they differ is that factoring considers invoices or established sales when creating a business loan for an applicant whereas a merchant cash advance considers sales yet to be generated in determining the amount and terms of business financing. Both financial products can be very useful for business owners looking to develop their company.

Invoice Factoring

Factoring in detail is where a business owner sells invoices or accounts receivable loans to a factor or lender at a discount. The lender gives the business a cash advance at a varying rate of about seventy to eighty percent of the total invoiced amount plus possible fees. This allows business owners to get immediate money for funds that are yet to be received, and in turn these businesses can capitalize on market pricing swings, expansion plans, and many other strategies for developing their business.

Merchant Cash Advance

A merchant cash advance is an exchange where the lender gives a company owner a business cash advance against a small portion of the company’s future credit card sales. The actual sales are projected and have yet to take place. Here the lender offers the merchant a cash advance for a fee and there are usually set percentages of daily sales deducted to payback the principal and fee of roughly fifteen percent. Merchants can utilize the money in any way they wish so it can be useful to cover operating expenses or be a tool for any type of company advancement.

Both invoice factoring and merchant cash advances are business loan alternatives that give business owners access to immediate capital against sales generated. They both are very useful for assisting smaller companies in the development process. If you are a business owner seeking immediate business financing you can determine which one is the right fit for your company.

Recommended Posts