Comparison

Merchant cash advance vs invoice factoring: the differences that decide it.

A neutral side-by-side, with the arithmetic, so you can pick the structure that fits.

✓ Checking what you qualify for does not affect your credit score.

The short version

Both release cash you have not yet collected. Invoice factoring sells specific invoices at a discount. An advance sells a share of future sales. The question is which of your receivables is easier to point at.

What is soldFactoring: specific, issued invoices. Advance: a portion of future receivables.

Who suits itFactoring: B2B firms with large, creditworthy customers. Advance: businesses with steady deposits, often card-heavy.

Whose credit countsFactoring: your customers' credit. Advance: your own deposit history.

Customer involvementFactoring: customers may be told to pay the factor. Advance: customers usually never know.

CostFactoring: a discount rate on each invoice, often a few percent. Advance: a factor rate on the whole amount.

SpeedBoth can be fast once set up.

RepeatabilityFactoring: ongoing as you issue invoices. Advance: a defined amount each time.

A worked example

Illustrative arithmetic

A staffing agency depositing about $140,000 a month asks for $60,000 to cover payroll while invoices settle. At a 1.22 factor the payback is $73,200, a cost of $13,200. Over roughly 6 months that is about $581 per business day, or close to 9% of monthly deposits.

Total payback on the advance: $73,200.
Cost: $13,200.
Roughly $581 per business day, or about 9% of monthly deposits.

Every figure on this page is illustrative arithmetic in Canadian dollars. It is not an offer, a quote or a promise of approval.

How to decide

If most revenue is a few large invoices, factoring may be cleaner and cheaper.
If revenue is many small card or cheque deposits, an advance fits better because there is little to factor.
If you do not want customers contacted, an advance keeps the relationship private.
If invoices are paid within a few weeks anyway, the gap may not justify either.

Where people go wrong

Assuming factoring is always cheaper. Compare the effective cost across your actual payment times.
Factoring invoices from slow or weak customers and discovering it is not accepted.
Mixing both without checking agreements, because factors often claim the receivables.

Common questions

Can I do both?

Rarely. Receivables sold to a factor are not available to an advance, so confirm what each agreement claims.

Does factoring suit restaurants?

Not usually. Restaurants are paid at the till, so there are no invoices to factor.

Which is faster?

Both are usually faster than a bank loan once the account is set up.