What does this guide cover?

One product sells a specific invoice you have already earned. The other sells an undefined slice of everything you will earn next. That difference decides almost everything.

Which funding products does this apply to?

Merchant Cash Advance, Invoice Financing. Each has its own page listing the funders in this directory that offer it and what each one publishes about its terms.

Is this specific to construction?

It is written around how a construction business actually generates and collects cash, which is what makes its funding problem different. The mechanics transfer; the arithmetic may not.

The Find Me Funders research desk. Some drafting is AI-assisted, and every page that is says so at the top, including whether a person has checked its claims yet.

How do I know a figure here is right?

Where a page carries the green notice, its claims were checked against the sources listed at the end and a reviewer is named. Where it carries the amber one, nobody has verified it yet and you should confirm anything you plan to act on.

Are the examples real deals?

No. Every worked example is labelled illustrative and exists to show the arithmetic. What any particular lender charges is on that lender's page, where it publishes it.

Why do you never say what a typical rate is?

Because we cannot source it. A market average assembled from lenders who do not publish prices is a guess with a decimal point on it. Where a lender publishes a figure, we show that figure and say where it came from.

Is this financial or legal advice?

No. It is general information about how these products work. Outcomes depend on your contract and your state, and a lawyer or accountant licensed where you are is the person to ask about your situation.

Can I reuse this content?

Quote a paragraph with a link back. Do not republish whole articles.

MCA or invoice factoring for a receivables gap?

If the reason you are short of cash is that you delivered work in March and get paid in June, you have a receivables gap. Two products address it and they are not close substitutes.

What each one actually sells

Invoice factoring.You sell a specific, already-issued invoice — work delivered, amount fixed, customer identified — at a discount. The factor advances a portion of the face value immediately, collects from your customer, and remits the remainder less its fee when the invoice pays.

Merchant cash advance.You sell an undefined portion of receipts you have not yet generated, for a fixed sum, and deliver a larger fixed sum out of future receipts.

Factoring converts an existing asset into cash. An advance sells future performance. The first is a timing solution; the second is a financing decision with a fixed cost attached.

Who gets assessed

In factoring, the credit question is mostly about your customer. The factor is going to collect from them, so their payment history and creditworthiness carry more weight than yours. That makes factoring available to young businesses, thin-file businesses and businesses with weak owner credit, provided their customers are solid — a very common pattern in trucking, staffing and construction subcontracting.

In an advance, the assessment is your deposit history. Consistent receipts matter; who owes you is largely irrelevant.

What it costs, and how the cost behaves

Factoringtypically charges a discount fee that accrues with time outstanding — expressed per period the invoice is unpaid — sometimes with an origination or minimum-volume element. Cost therefore scales with how long your customer takes. A customer who pays in 25 days costs less than one who pays in 55.

An advancecharges a fixed dollar difference set at signing. It does not scale with time, which means holding the money briefly does not save anything, and a longer collection does not cost more in dollars.

For a receivables gap this matters. Your customer pays when they pay. Factoring's cost tracks that reality. An advance's does not, and its collection starts immediately regardless of whether the invoice has landed.

The trade-off people care about most

Your customer finds out. In most factoring arrangements the invoice is assigned and the customer is notified to pay the factor, so the relationship is visible. Non-notification arrangements exist but are less common and usually require a stronger business. Some owners find that unacceptable; in industries where factoring is routine — freight, staffing — nobody blinks.

An advance is invisible to your customers. Nobody outside the business knows, and you pay for that privacy through a fixed cost and a daily debit that runs whether or not the invoice has paid.

The other structural differences

Recourse.Most factoring is recourse: if your customer does not pay, you buy the invoice back or substitute another. Non-recourse facilities exist, usually cover credit risk only — insolvency of the customer, not a dispute about the work — and cost more. Read which one you are being offered, because "non-recourse" is used loosely.

Eligibility rules.Factors decline invoices: aged beyond a threshold, disputed, subject to progress billing, from customers over a concentration limit, or from customers they will not take. You may be able to finance less of your ledger than you expect.

Ongoing administration.Factoring involves submitting invoices, verification calls to your customers, and a facility that runs continuously. It is more operational overhead than a single advance and it is also a relationship that grows with your sales.

Availability.Factoring needs commercial invoices. If you sell to consumers at a counter, there is nothing to factor. That, more than anything, is why card-based retail and hospitality end up looking at advances.

The same gap priced both ways

Illustrative only —$120,000 of invoices to commercial customers who pay in about 55 days, and a need for cash now.

Factored at an 85% advance rate, $102,000 arrives within a few days of verification. At a discount fee of 1.2% per 30 days, 55 days costs $2,640 — 2.2% of face. When the customer pays, the remaining $18,000 comes back less that fee.

An advance of $100,000 at a 1.32 factor repays $132,000 over nine months. The cost is $32,000, and the daily debit across roughly 189 banking days is $698.

Those look incomparable, and the reason is that they finance different things. The factoring fee buys 55 days of cash on one batch of invoices. The advance buys nine months of money regardless of what your invoices do.

So run the comparison over the same period. Factoring the same $120,000 ledger continuously for nine months means roughly five collection cycles, at about $13,150 of total fees, while keeping $102,000 of cash standing in the business the whole time. The advance costs $32,000 for a smaller sum and collects it back at $698 a day from the first week, whether or not your customers have paid.

The gap is wide here and narrower elsewhere — a faster-paying ledger makes factoring cheaper still, a disputed one makes parts of it ineligible. The method transfers: price both over the same months, against the same cash received, including the fee each time the cycle repeats.

Choosing

Ask three questions:

Do I have issued invoices to identifiable commercial customers? If no, factoring is not available and the comparison ends.
Is my gap the timing of specific invoices, or a general shortage of working capital? Timing of specific invoices points to factoring. A general shortage points to a different conversation, and often to a problem financing will not solve.
Can my customer relationships tolerate notification? If genuinely not, price the alternative honestly rather than assuming it is a small premium.

What to ask for before either decision

For a factoring proposal, four numbers together make the price: the advance rate, the discount fee and the period it accrues over, the reserve and when it is released, and the recourse position. A quote citing the discount alone is not a quote. Add the eligibility rules — age limit, concentration cap, excluded customers — which decide how much of your ledger is financeable, and the termination terms, since most agreements run for a committed period with notice requirements and minimum volume charges.

For an advance: total repayment in dollars, the amount landing after any fee withheld, the payment and frequency, the expected number of payments and the assumption behind it, and whether reconciliation is a written right with a procedure rather than a discretion.

Then one question for both: what happens if the invoice you are financing does not pay. In factoring the answer is in the recourse clause and it is a defined mechanism. In an advance the answer is that nothing happens to the obligation at all — your customer's failure is your problem and the debit continues the next morning. For a receivables gap, that asymmetry is the whole difference between the two products.

Where the gap is invoices and factoring is available, it is usually the closer instrument: the cost tracks the delay you are actually financing, the assessment leans on your customer's credit rather than yours, and repayment happens when the invoice pays instead of every morning at six.

Receivables gap: advance or invoice factoring