The Difference Between Merchant Cash Advances and Factoring

A low-credit merchant cash advance is typically structured as a purchase of future credit card sales for a business with a merchant account. Typically, a finance company estimates the credit card sales of a small business and projects how it will fair in the coming months. This is based on the information provided on the application.

Other factors include industry type and the details about customer transactions in deciding whether to provide a merchant cash advance. Then based on the credit card sales estimate and the risks assigned to these other factors, the business cash advance company will offer to pay cash up front to the business. This can often take as long as a week.

On the other hand, factoring is the process of purchasing commercial accounts receivable (invoices) from a business at a discount. Factoring companies like IFG will buy your invoices for less than face value and then be paid in full by your customers. The difference between the discounted rate and the face value is the factors profit or incentive for buying your invoice upon submission.

Many small business owners believe that factoring is faster and safer than cash advances from their merchant banks.

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