Question 1

What is the main difference between an MCA and invoice factoring?

Accepted Answer

The core difference is what you are selling. With an MCA, you sell a portion of your future revenue — the funder advances cash today and collects from your daily deposits or card sales until the agreed total is paid back. With invoice factoring, you sell specific existing invoices at a discount. The factor advances 80–90% upfront, then collects from your customer and remits the remainder minus fees.

Question 2

Which is cheaper — MCA or factoring?

Accepted Answer

Factoring is almost always cheaper. Factor fees typically run 1.5–3.5% per 30 days, annualizing to roughly 18–42% APR. MCA factor rates of 1.20–1.45 over 90–150-day terms produce effective APRs of 50–150%+. The tradeoff is access: factoring requires B2B invoices with creditworthy customers and takes longer to set up.

Question 3

Does factoring require good personal credit?

Accepted Answer

No — factoring underwriting focuses primarily on your customers' creditworthiness, not yours. The factor is essentially lending against your customers' promise to pay, so their ability to pay matters more than your personal credit score.

Question 4

Will my customers know I am using invoice factoring?

Accepted Answer

In most cases, yes. When you factor an invoice, your customer receives a notice of assignment directing them to pay the factor directly. This is standard practice. Some factors offer confidential factoring, though it is less common. An MCA never involves your customers.

Question 5

Can I use both an MCA and factoring at the same time?

Accepted Answer

Technically yes, but it requires coordination. If you have an active MCA with a UCC lien on your receivables, a factoring company may have difficulty taking a senior position on your invoices. Disclose all existing funding positions to both parties.

Question 6

Is invoice factoring a loan?

Accepted Answer

No — factoring is the sale of an asset (your invoice), not a loan. Factoring does not appear as debt on your balance sheet, and factor fees are typically treated as a cost of sales rather than interest expense. MCAs are similarly structured as a purchase of future receivables, not a loan.

	MCA	Invoice Factoring
What you're selling	A portion of future revenue	Specific unpaid invoices
Who can use it	B2C or B2B — any business with revenue	B2B and government contractors only
Funding speed	Same day to 48 hours	3–10 days to set up; same-day after
Cost	Higher — factor rates 1.15–1.50x	Lower — 1.5–3.5% per 30 days of invoice
Credit score required	Flexible — 500+ often acceptable	Your credit matters less; your customers' credit matters more
Repayment source	Your daily deposits or card sales	Your customer pays the factor directly
Customer notification	None — customers never know	Usually required — factor collects from them
Funding scales with revenue	No — fixed advance amount	Yes — more invoices = more available
Collateral	None — UCC lien on business assets	The invoices themselves
Works for seasonal businesses	Yes — especially CC split structure	Yes — only pay fees when you factor
Early payoff benefit	Rarely — factor rate is fixed	Yes — faster customer payment = lower fee

MCA vs. Invoice Factoring

Merchant Cash Advance

Invoice Factoring

Cost Comparison Calculator

Feature Comparison

Which Fits Your Situation?

MCA is likely the better fit if you…

Factoring is likely the better fit if you…

Frequently Asked Questions

Not sure which fits your business?

Related Tools & Guides