Invoice Factoring vs. MCA: Compare Business Funding
Invoice factoring vs. MCA — both provide fast cash without strong credit, but serve very different business models.
Invoice Factoring: Invoice factoring converts outstanding B2B invoices into immediate working capital — the factor advances a percentage and collects from your customers. Merchant Cash Advance: A merchant cash advance delivers a lump-sum advance against your future credit card or daily revenue, repaid as a fixed percentage of daily sales.
Invoice Factoring vs. Merchant Cash Advance — side by side
| Invoice Factoring | Merchant Cash Advance | |
|---|---|---|
| Typical amount | $10,000 – $5,000,000 | $5,000 – $500,000 |
| Typical term | 30 – 90 days per invoice | 3 – 18 months |
| Rate | 1% – 5% per 30 days | 1.10 – 1.50 factor rate |
| Minimum time in business | 6 months | 6 months |
| Minimum credit score | No minimum (based on your customers) | 500+ |
Which is right for your business?
- Invoice Factoring tends to fit best when you need payroll or supplier payments.
- Merchant Cash Advance tends to fit best when you need inventory purchases or payroll gaps.
Frequently asked questions
Is invoice factoring cheaper than an MCA?
Yes, almost always. Factoring fees of 1–5% per 30 days translate to an effective APR of 12–60%. MCA factor rates of 1.2–1.5x on a 6-month advance translate to 50–200%+ effective APR. For businesses with factorable invoices, factoring is the materially cheaper option.
Do both products check personal credit?
Factoring decisions are based primarily on the creditworthiness of your customers, not you. MCA decisions are based on your business revenue volume; personal credit is checked but is rarely the deciding factor. Both are more accessible than bank products for businesses with challenged personal credit.
