Invoice Factoring: A Better Alternative to Merchant Cash Advances

Business owners lean on Merchant Cash Advances (MCAs) more and more to solve cash flow problems. MCAs offer quick access to cash based on future sales projections. But while MCAs can provide short-term relief, their high costs and rigid repayment terms make them an unsustainable solution. This may not seem like such a big deal when you need cash, but high costs and terms that might not be as aligned with long-term growth.

That’s why, in your search for sustainable and cost-effective financing solutions to facilitate growth, it’s good to look beyond the obvious options to alternatives that align with your business’s unique needs and goals. One alternative is invoice factoring, which immediately frees up cash tied up in your outstanding invoices. And it comes without some of MCA’s drawbacks.

In other words, there’s a time and a place for MCAs. But we’re here to talk about when invoice factoring might be a better long term solution, both for businesses and for brokers.

What is Invoice Factoring?

Invoice factoring allows you to leverage your outstanding invoices for immediate cash flow.

By selling your unpaid invoices to a factoring company at a discount, you get much of the invoice value upfront, typically 70% to 90%.

Unlike MCAs, which provide funding based on future sales projections, invoice factoring is tied directly to the value of your actual receivables. This means that the financing is based on work you’ve already completed and invoices you’ve already issued, providing a more stable and predictable source of funding.

And factoring doesn’t depend on your credit. So your company gets funding based on the credit of the companies that you invoice, giving you a much greater capacity to borrow, something no other financial tool can offer.

And with the right factoring relationship, you could truly accelerate your cash flow every month.

Is Invoice Factoring a Better Alternative to Merchant Cash Advances?


MCAs are spendy. With interest rates and fees that can often reach triple digits (when annualized to compare apples to apples), MCAs can quickly eat into your profits and limit your growth potential. Invoice factoring, on the other hand, usually offers much lower rates, with fees ranging from 1% to 5% of the invoice value.

Read: You keep more of your money.

Better Cash Flow

Cash flow issues, like slow-paying customers, seasonal fluctuations, and unexpected expenses, can all put a strain on your finances, making it difficult to meet operational costs and invest in growth.

For some businesses, MCAs, with their quick repayment terms and high daily or weekly payments, can aggravate these cash flow issues, leaving you struggling to keep up.

Invoice factoring is more flexible and sustainable solution. By converting your unpaid invoices into immediate cash, you can smooth out your cash flow and ensure that you have the funds you need to meet your obligations and seize growth opportunities.

This is especially good for businesses with long payment cycles or in industries with extended payment terms, like construction or manufacturing.

Read: Payback isn’t a pain.

Flexible and Scalable

Unlike MCAs, which often come with fixed repayment terms and daily or weekly payments, factoring allows you to access funding on an as-needed basis. As your business grows and your invoicing volume increases, you can factor more invoices and receive more funding without the need for a new application or approval process.

This scalability makes invoice factoring an ideal solution for businesses that are experiencing growth or have fluctuating cash flow needs.

Whether you’re looking to hire new employees, purchase equipment, or expand into new markets, factoring can provide the financial support you need to achieve your goals.

Read: There’s no requirement to factor all of your invoices: just use it when you need it.

Choose the Right Factoring Partner

Look for track record and industry fit. Choose a factoring partner with a track record in your industry and an understanding of your unique needs and challenges.

In addition to good support and a dedicated team, a good factoring company will offer:

  • Transparent terms
  • Competitive rates
  • A streamlined application process

Whether you’re looking to improve your cash flow, invest in growth, or simply stabilize your finances, the right will be on your side, invested in your success.

Potential business partners discussing a deal overlooking a major city

Make the Switch from MCAs to Invoice Factoring

If you’ve been a little over-reliant on MCAs to meet cash flow needs, and want to switch to invoice factoring, compare some rates, terms, and services. Look for a partner that has experience in your industry and a good reputation.

Once you’ve found the right fit, the application process is typically pretty simple, with minimal paperwork and no long-term contracts.

Yeah, that’s a big one: make sure they don’t want you to sign a long-term contract.

Invoice Factoring Puts You on a Better Track than MCAs

MCAs can be a great quick fix, but for most business, invoice factoring can be a better long-term solution to put you on course to even better funding options.

Invoice factoring provides an alternative, unlocking the value of your receivables and improve your cash flow without the drawbacks of MCAs.

By partnering with a reputable factoring company and making the switch from MCAs to invoice factoring, you can take better control of your cash flow. With the flexibility, cost-effectiveness, and scalability of factoring, you’ll get the financial support you need to seize growth opportunities, navigate challenges, and achieve your goals. Learn more about working with Liquid Capital as a referral partner. Or if you’d like to see if factoring might be right for your situation, connect with us today.