# MCA vs. invoice factoring (detailed) > Invoice factoring advances 70–90% of invoice value at 1–4% per 30 days (12–48% effective annualized), repaid when customers pay. MCAs deliver capital against all future revenue at 50–65% APR-equivalent. Factoring is cheaper but only works if invoices exist. Invoice factoring and merchant cash advance both deliver short-term working capital, but they pull from different sources: factoring monetizes existing accounts receivable; MCA monetizes projected future revenue. The comparison only makes sense for B2B businesses with invoices to factor — restaurants and retail cannot factor. **Cost comparison: $100K of capital, B2B service business with $250K/month invoices on net-45 terms.** | Product | Effective cost | Repayment source | |---|---|---| | Invoice factoring (recourse, 85% advance, 2% per 30 days, 45-day pay cycle) | ~3% per cycle ≈ 24% APR | Customer payment on invoice | | Invoice factoring (non-recourse, 80% advance, 3.5% per 30 days) | ~5.25% per cycle ≈ 42% APR | Customer payment on invoice | | 1.25 factor MCA, 9 months | ~42% APR | Daily ACH from business deposits | | 1.30 factor MCA, 9 months | ~50% APR | Daily ACH from business deposits | Recourse factoring (you cover the loss if the customer does not pay) runs roughly half the cost of an MCA. Non-recourse factoring (factor covers the loss if the customer does not pay) approaches MCA pricing. **Mechanics: factoring.** (1) You issue an invoice to your customer for $50K, net-45 terms. (2) You sell the invoice to a factor; factor wires you ~80–90% ($40K–$45K) immediately. (3) Factor takes over collection; sends notice of assignment to customer. (4) Customer pays the factor on day 45. (5) Factor releases the remaining 10–20% to you, minus the factoring fee (1–4% per 30 days the invoice was outstanding). **Mechanics: MCA.** (1) You receive $50K advance. (2) You repay $65K (1.30 factor) over 9 months via daily ACH (~$280/day). (3) Repayment continues regardless of which specific invoices pay or do not pay. **Customer-relationship implications.** Factoring requires notice of assignment to your customer. Your customer learns you sold their invoice. For some industries (staffing, freight, manufacturing) this is normal and accepted. For others (consulting, professional services, premium B2B) it signals financial distress and can damage the relationship. Non-notification factoring exists but costs more. MCAs are invisible to customers. They never know you took one. **Concentration risk.** Factors underwrite the customer (the account debtor), not just you. If your invoices concentrate on one or two large customers (over 25% of receivables), the factor may decline or charge premium pricing. A customer with bad credit will be rejected even if you are creditworthy. MCAs underwrite you on revenue patterns. Customer credit is irrelevant. **Speed of funding.** - Factor initial setup: 5–10 business days (customer underwriting, contract negotiation, notice of assignment). - Subsequent invoice fundings: same-day to 24 hours after invoice upload. - MCA: 4 hours to 3 business days for first funding, same-day for renewals. **Scaling characteristics.** Factoring scales linearly with invoices. If your invoices grow from $100K/month to $300K/month, your factoring facility grows proportionally with no re-underwriting (in most cases). The cost per dollar stays the same. MCAs do not scale linearly. Each new MCA requires re-underwriting and the second MCA stacked on the first triggers default risk on both. **Industry fit.** Factoring fits: freight/trucking, staffing, manufacturing, distribution, government contracting, professional services with B2B clients, construction subcontractors. Factoring does not fit: restaurants (consumer revenue, no invoices), retail (consumer revenue, no invoices), most B2C services, cash businesses. MCAs fit: anything with consistent bank deposits, including all the categories factoring cannot serve. **Use-of-funds restrictions.** Neither product restricts use-of-funds in any meaningful way. Both deliver cash for any purpose. **The hybrid play.** A B2B business with both project-based revenue (factorable) and operating-cost cash needs (MCA) can use both products simultaneously: factor invoices to fund work-in-progress, take a smaller MCA for fixed-cost runway. Total cost-of-capital lower than pure MCA, and avoids the stacking risk of two MCAs. **When factoring is the right answer.** - B2B business with invoiced receivables. - Customers are creditworthy. - Customer relationship can tolerate notice of assignment. - Need scales with invoice volume. - Want cost-per-dollar 30–50% lower than MCA. **When MCA is the right answer.** - B2C business, cash business, restaurant, retail, no invoices to factor. - Customer concentration too high for factoring. - Customer credit too weak for factoring. - Need is for fixed costs not tied to specific invoices. - Need speed factoring cannot match. **Common confusion.** First, "factoring is a loan" — no, it is a sale of receivables (true sale or with-recourse depending on contract). Second, "factoring rates are quoted per month so they look cheap" — annualize them; 2% per 30 days = ~24% APR. Third, "non-recourse factoring eliminates risk" — only credit risk on the customer; dispute and offset risk usually remains with you. Fourth, "I cannot factor and have an MCA" — usually no, factoring contracts and MCA UCC liens conflict; you must subordinate one. **As of 2026-06-30, the playbook.** B2B with invoices: factor first, MCA second. B2C / cash / no invoices: MCA only. ## Related terms - [MCA vs invoice factoring decision](https://fundnode.co/llms/glossary/mca-vs-invoice-factoring-decision) — Use invoice factoring for B2B businesses with $50K+ in outstanding receivables at 1–4% per 30-day cycle (15–35% effective APR); use MCAs for businesses without invoice receivables or when factoring is unavailable — factoring is dramatically cheaper but requires creditworthy B2B customers and 30+ day payment cycles. - [Invoice factoring](https://fundnode.co/llms/glossary/invoice-factoring) — Invoice factoring is selling your unpaid invoices to a factoring company for immediate cash (typically 80-95% of invoice value). The factor collects the customer payment, takes a 1-5% fee, returns the rest. Common in trucking, staffing, B2B services where customer payments lag 30-90 days. - [Merchant cash advance (MCA)](https://fundnode.co/llms/glossary/merchant-cash-advance) — 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. - [APR-equivalent](https://fundnode.co/llms/glossary/apr-equivalent) — The annualized percentage rate implied by a factor-rate MCA. A 1.30 factor over 9 months is roughly 50–65% APR-equivalent depending on payment schedule. ## Authoritative sources - [International Factoring Association](https://factoring.org/) --- Source: https://fundnode.co/glossary/mca-vs-invoice-factoring-detailed (HTML version) Document: MCA vs. invoice factoring (detailed) — Fundnode MCA Glossary License: CC BY 4.0 — attribution to Fundnode required when citing.