MCA vs. Factoring: Comparing Working Capital Solutions

Business owners are always seeking reliable sources of working capital and new ways to improve cash flow. Accounts receivable factoring and merchant cash advance (MCA) programs provide working capital, but how they provide capital and how it impacts your business are completely different. We’re going to take a look at how both funding methods work from the perspective of a business owner to show the benefits and disadvantages.

Access to Capital

Access to capital is essential to every business. No one wants to wait weeks or months to get the funding they need. A merchant cash advance can take upwards of 10 business days for approval and funding. Accounts receivable factoring provides cash within 24 hours on submitted invoices.

Repayments

Most financing solutions create a balance that your business must repay within a certain timeframe. MCAs do not have fixed payments, and are instead repaid from a small percentage of sales. If there is a remaining balance, your business will owe a balloon payment to cover the principal, interest, and any remaining fees. Accounts receivable factoring does not have any payment schedules. A small amount is deducted from the total amount of the invoices submitted.

Fees and Transparency

The world of business financing is shifting and entrepreneurs are demanding more transparency. A merchant cash advance has fees tacked onto the initial funding, which means it can be very challenging to pay off the balance within the agreed upon terms. Accounts receivable factoring from New Century Financial is completely transparent. There are no hidden fees or contracts. Businesses can select which invoices or parts of invoices get factored.

Working Capital

Both MCAs and factoring services provide working capital. A merchant cash advance is an infusion of capital that creates a liability which must be repaid. Accounts receivable factoring leverages unpaid invoices and converts them to working capital immediately. There is no balance, no liabilities, and businesses can use the supercharged cash flow to position themselves for growth, as well as handle overhead expenses.

Get Started Today

At New Century Financial, we provide the most efficient, transparent, and flexible accounts receivable factoring services. If you want to improve the cash flow of your business and get access to funds quickly, contact the team at New Century Financial and learn why businesses prefer factoring services over MCAs.