Invoice Factoring vs. Merchant Cash Advance

Both invoice factoring and a merchant cash advance (MCA) put cash in your hands quickly, but they work in fundamentally different ways and carry very different cost structures.

How each one works

Invoice factoring advances you cash against specific, unpaid B2B invoices. Repayment comes from your customer paying the invoice. The cost is tied to the invoice value and how long it takes your customer to pay.

A merchant cash advance gives you a lump sum upfront, which you repay through a fixed daily or weekly deduction — usually from your card sales or directly from your bank account. Repayment isn't tied to any specific invoice; it's a steady draw on your cash flow.

Key differences

• What it's secured against: Factoring is tied to specific receivables. An MCA is an advance against future sales, repaid continuously.
• Repayment rhythm: Factoring repays when your customer pays (often 30–60 days). An MCA repays daily or weekly, regardless of when your customers pay you.
• Cost: MCAs are typically priced as a "factor rate" (a fixed multiplier on the advance) and can carry very high effective annual costs. Factoring fees are usually a percentage of the invoice and scale with how long the invoice is outstanding.
• Cash flow pressure: Because an MCA pulls money out daily, it can squeeze cash flow even when you're not collecting from customers. Factoring aligns repayment with your customer actually paying.

When each is used

Factoring suits businesses with solid B2B invoices and creditworthy customers who simply pay on terms. An MCA is sometimes used by businesses with high card-based sales volume — but the daily repayment drag and high cost make it worth approaching carefully.

If you have unpaid invoices from creditworthy customers, factoring is usually the more predictable and often cheaper route.