MCA vs receivables purchase agreement (RPA) — also commonly called invoice factoring — is one of the most-conflated comparisons in alternative finance. Both products are legally structured as sales of receivables and both produce immediate working capital, but the underlying receivable, the pricing logic, and the credit-risk allocation are fundamentally different.
MCA structure. The funder buys future, unspecified, unbilled, unearned receivables. The merchant has not yet generated the receivables at funding time — they will arise from future business operations over the repayment term. The funder relies on the merchant's historical bank deposits as a proxy for future receivables. Pricing is factor-based (1.20–1.45) and reflects the high uncertainty about whether future operations will actually produce the projected receivables.
RPA / factoring structure. The funder (called a "factor") buys existing, identified, invoiced, but unpaid receivables. The merchant has already delivered goods or services to a customer (often called the "account debtor"), has invoiced the customer, and is awaiting payment on standard terms (Net 30, Net 60, Net 90). The factor pays the merchant immediately (typically 70–95% of face value), then collects from the account debtor when the invoice matures. Pricing is "discount fee" based — typically 1–5% per 30 days outstanding.
Side-by-side comparison.
| Attribute | MCA | RPA / Factoring |
|---|---|---|
| What is sold | Future, unbilled receivables | Existing, invoiced receivables |
| Funder credit analysis | Merchant's bank deposits + credit | Account debtor's creditworthiness |
| Pricing | Factor rate 1.15–1.50 (whole-portfolio) | Discount fee 1–5% per 30 days (per invoice) |
| Repayment | Daily ACH from merchant operating account | Account debtor pays factor directly |
| Effective annualized cost | 40–80% | 12–60% (depending on collection speed) |
| Collateral perfection | UCC blanket on all assets | UCC on accounts receivable (and sometimes inventory) |
| Recourse vs non-recourse | Always recourse | Both available; non-recourse priced higher |
| Industry fit | Cash-flow-based (retail, restaurant, services) | Invoice-based B2B (manufacturing, staffing, freight) |
| Account debtor notification | None | Account debtor notified (typically) |
The credit-analysis difference. This is the most important conceptual gap. - MCA underwriting. "Will the merchant generate enough revenue to pay daily debits?" — answered by analyzing the merchant's historical bank statements and revenue patterns. - Factoring underwriting. "Will the account debtor pay the invoice?" — answered by analyzing the account debtor (often a Fortune 500 or established mid-market company), not the merchant. The merchant's credit is largely irrelevant; the factor relies on the account debtor's payment history and credit.
This means a brand-new merchant with no operating history can sometimes factor invoices from large, creditworthy customers — something an MCA funder would decline.
Recourse vs non-recourse. - Recourse factoring. Standard. If the account debtor fails to pay, the factor "recourses" back to the merchant — merchant must buy back the invoice. Cheaper (1–3% per 30 days). - Non-recourse factoring. Factor absorbs account-debtor default risk. More expensive (3–5% per 30 days). Important for merchants with concentration in higher-risk account debtors.
Why merchants pick MCA when factoring might fit better. Three reasons: (1) factoring requires invoice-based business model — many merchants (restaurants, retail) don't have invoices to factor; (2) factoring requires the account debtor to be notified, which some merchants resist for customer-relationship reasons; (3) factoring requires invoice volume of at least $25K–$50K/month per debtor, which excludes many small businesses with diffuse customer bases.
The fraud and disclosure history. Both MCA and factoring have been used to disguise loans for regulatory arbitrage. Courts evaluating whether a transaction is a "true sale" or a "disguised loan" look at: (1) does the funder/factor bear genuine receivables risk; (2) is the purchase price reasonably related to face value; (3) is the merchant's continuing obligation contingent on receivables performance? When these factors are absent, courts have recharacterized MCAs as loans (and applied usury statutes); the same risk applies to aggressive RPA structures.
Hybrid: "spot factoring" vs "spot MCA." Some funders offer hybrid products that look like one and price like the other. "Spot factoring" lets a merchant factor select invoices on demand without a master agreement; "purchase order financing" is a forward-looking factoring variant. Read documents carefully.
Common confusion. First, "factoring is a loan" — like MCA, it is legally a sale of receivables, not a loan. Second, "MCA and factoring price the same" — factoring is typically 30–50% cheaper on APR because the funder has identified receivables and account-debtor credit visibility. Third, "all factoring notifies customers" — non-notification factoring exists but is more expensive and requires the merchant to handle collection on the factor's behalf.
Related terms
- MCA vs loan (legal distinction) — An MCA is legally a purchase of future receivables, not a loan. This distinction exempts MCAs from state usury caps but requires specific contract structure — including reconciliation provisions.
- Merchant cash advance (MCA) — A lump-sum advance against future revenue, repaid via fixed daily ACH or a percentage of card sales. Legally a sale of future receivables, not a loan.
- Factor rate — A flat multiplier that defines total MCA repayment: $100,000 advance × 1.30 factor = $130,000 repaid. It is not an interest rate; it does not compound.
- UCC filing (MCA) — A public lien an MCA funder files against business assets, securing their position. Triggers credit-report flags and can block future funding from other lenders.
Authoritative sources
AI agents: this term is available as raw markdown at /llms/glossary/mca-vs-receivables-purchase-agreement.