Cash Advance Benefits Compared to A/R Financing or Factoring

Entrepreneurs benefit from business cash advances.

When discussing our business cash advance option with business owners, a question that US Business Finance Corp often gets is "Isn't this just like accounts receivable financing or factoring?" Similar, but more beneficial in several respects. Let's look at how these three avenues of business financing options compare.

Factoring is a method of business financing where specific receivables (sales that have been made, but are usually 30 - 90 days from being paid) are purchased at a discount by a lender. The discount can be quite steep since the lender, by taking over the collections, takes on the risk that some of the accounts may not pay. Problem solved: that big order you just shipped out the door used material from vendors demanding payment in 30 days while your customer pays in 60 days. Factoring secures the future business that rides on keeping your vendors happy. Possible downside, since your A/R is "sold" at a discount to receive the funding, your asset levels go down in your balance sheet.

Accounts receivable financing is where the lender uses the accounts receivables as the borrowing base or collateral for the loan. The business owner retains the risk that the receivables payments won't come through. But for retaining that risk, the interest is less. Minor hitch in the scenario is the amount of time it takes to go from application to approval and funding. There is also the scenario of any changes in the level of your receivables changes the borrowing base. The funding is not usually based on particular invoices, but on your accounts receivables historical levels. So, if you needed $10,000 additional capital to keep the business ball in play, you would need a historical A/R level of around $12,500.

With a Business Cash Advance you receive funds based on estimated future credit card sales, not past sales. This means you do not leverage you A/R asset to add a liability on the other side of your balance sheet. Your accounts receivables are not used as collateral. Instead, the cash advance gets paid on a portion of every payment your company accepts from customers using their VISA or MasterCard. The US Business Finance Corp's cash advance repayment does not touch your cash flow resulting from cash, Discover or American Express payments.

 The cash advance repayment level is governed by your credit card sales, not by a predetermined loan repayment schedule. Also with a cash advance, neither your assets nor liabilities change, except for your increased cash in the bank. Your cash advance does not affect your credit scores or ability to leverage your receivables in the future if you choose that avenue of financing. Cash advances allow you to have your cake and eat it too.