Invoice Factoring and Cash Advances: How Do They Stack Up?

By December 26, 2019 January 8th, 2020 Factoring
factoring

When businesses are looking for fast access to working capital, two options come to mind: Invoice factoring and cash advances. However, the two are very different both in purpose and how they are structured. Let’s take a look at both and see how they work.

Basis for Funding

  • Cash Advance: Cash advances are based on revenue history. If sales are low, then that will be reflected in the amount of funding received.
  • Invoice Factoring: Invoice factoring is a conversion of unpaid receivables to cash with a percentage taken out for processing.

Debt

  • Cash Advance: Cash advances to not place debt on the books, but there is still a balance owed which must be repaid within the specified terms.
  • Invoice Factoring: Invoice factoring is also a debt-free financing method. The big difference is that invoice factoring is fast and there is no balance to repay.

Repayment

  • Cash Advance: The balance owed on a cash advance is repaid through a small percentage of sales. While this overtly offers flexibility as opposed to scheduled payments with loans, if the balance isn’t repaid by the end of the terms, businesses are left with a large balloon payment.
  • Invoice Factoring: There are no payment schedules with invoice factoring. Once the percentage is taken out, the remaining balance is paid to your business immediately.

Fees and Interest

  • Cash Advance: Because a cash advance is, as the name implies, an advance of working capital, the interest rates are higher than traditional loans because the lender assumes more risk. Additionally, there are fees attached to each payment as well as the balloon payment left at the end of the terms.
  • Invoice Factoring: There are no hidden fees or ongoing interest with invoice factoring. The entire transaction is transparent so you know what you are getting.

At Single Point Capital, we specialize in invoice factoring to improve cash flow and get you the working capital you need. Our process is transparent, and you get to choose which invoices to factor. We offer same-day delivery of funds to your account, without any hidden fees or strings attached. Contact Single Point Capital today and let our team help your business to improve cash flow and working capital.

Leave a Reply