When businesses need financing, but do not want to take on debt from traditional loans, they typically seek out alternative methods. Among the dozens of options, invoice factoring and merchant cash advances (MCAs) are very popular. However, an MCA and invoice factoring are less alike than you might think.
1. The Balance Owed
One of the big marketing points with merchant cash advances is that they do not place debt on the balance sheet. While this is technically true, there is still a balance to repay, complete with high interest rates because no collateral is involved. By contrast, invoice factoring is a simple exchange of unpaid receivables for cash, so there is no lingering balance whatsoever.
2. No Fixed Payments
MCAs like to present themselves as being flexible because there are no fixed payments. The balance is repaid from a small percentage of sales. This seems attractive until you start digging into the fine print. The high interest rates on a merchant cash advance overshadow the flexible repayment methods, making it nearly impossible for businesses to pay off the entire balance, leaving them with a large balloon payment. On the other hand, invoice factoring has no ongoing payments, fixed or otherwise. Invoices are submitted and businesses get cash in return – it is literally that simple.
3. Hidden Fees
Merchant cash advances have lots of fees. There are fees for repayment. There are fees triggered for early prepayment. Since payments are usually done automatically from credit card sales, there are extra processing fees tacked onto those transactions. MCAs can be a fast road to placing a major strain on finances. Invoice factoring from New Century Financial has no hidden fees. Our commitment is to simplicity and transparency, so businesses are always aware of what they are getting.
4. Contracts
Where a merchant cash advance and a traditional loan are very similar is the contractual agreement. There is a balance owed and terms detailing when the balance must be repaid in full. Businesses are locked into those contracts until the full amount is repaid with interest and fees. At the other end of the scale, invoice factoring from New Century Financial has no long-term contracts, giving businesses more freedom and flexibility than any other form of financing.
If you want to turn your outstanding receivables into cash within 24 hours without hidden fees or long-term contracts, contact the team at New Century Financial today.