The Merchant Cash Advance Versus Invoice Factoring

A potential client of ours recently said he was trying to decide between using a merchant cash advance loan or invoice financing to fund his business.

Both funding sources have benefits, but there are some key differences to keep in mind if you find yourself facing a similar decision.

What is a Merchant Cash Advance

First of all, the cash advance is essentially a short term loan. Some companies classify it as a “sale of future credit card sales,” which shields them from interest rate limits, which can range from 10 to 100 percent.  The bottom line, though, is it creates a debt that must be repaid, typically through a percentage of future credit card sales. This type of funding is typically used by retail shops and restaurants where the customers are individual consumers.

The benefits are immediate cash and an easy application process.

When to Use Invoice Factoring

Invoice factoring is not a loan and creates no new debt. There is no money to pay back, ever. After an easy application process, funds are deposited immediately based on the value of your accounts receivable. Perhaps best of all, the financing line increases as your sales grow.  This business financing option is ideal for business to business transactions where your company provides good or services and then invoices your clients with payment terms.

When Universal Funding is your provider of invoice factoring, rates can start as low as 1 percent. And with the added benefits of working with Universal, you have access to free business advice, tax help, credit checks on new customers and the option to obtain A/R insurance.

Choosing the right form of business financing is a huge part of any company’s success. If you’d like to discuss how invoice factoring can benefit you, as the gentleman mentioned in the opening paragraph did, please contact us today!

He’s the latest to benefit from our funding services, maybe you can be next!