Factoring vs a merchant cash advance (MCA): how each one gets paid back.
A merchant cash advance gives you cash now and takes it back from your bank account, usually with daily or weekly debits, whether or not your customers have paid you. Factoring advances cash on invoices you already issued, and it's paid back when your customers pay those invoices. If you sell to other businesses on 30-, 60- or 90-day terms, an MCA is usually the wrong tool.
Daniel Chirino · Business Development Officer, 1st Commercial Credit
Updated: October 29, 2026
Side by side
| Topic | Merchant cash advance | Invoice factoring |
|---|---|---|
| What it is | An advance you pay back out of your sales or your bank account. Texas now regulates it as commercial sales-based financing. | The sale of invoices you already issued to a factoring company. |
| How it's paid back | Automatic daily or weekly debits from your bank account. | Your customer pays the invoice. Nothing comes out of your account. |
| If your sales slow down | The debits keep coming. | There's nothing to pay back from your account. If you invoice less, you factor less. |
| What gets reviewed | Your daily deposits, your time in business and your personal credit. | Mainly your customers' credit. |
| Stacking | A second or third advance on top of the first is common, and each one adds its own debits. | No new debt and no stacked payments. |
| Cost | 1st Commercial Credit's president put the average at about 30% over six months; it can be higher or lower depending on the business and its credit score. | A fee on each invoice. 1st Commercial Credit publishes rates from 0.69% to 1.59%, depending on your volume, how fast your customers pay and their credit, and says its average client pays about 2.25%, depending on how many days the invoices take to be paid. |
| Who it fits | Merchants with steady daily deposits, such as card sales, that need short-term cash. | Businesses that sell to other businesses or the government on credit terms. |
The two costs aren't measured the same way. The MCA figure covers the whole advance over six months; the factoring fee is charged on each invoice you sell. To compare them on your numbers, use the factoring calculator and ask the MCA for the total you'd pay back, in dollars.
The most common trap
1st Commercial Credit describes it like this: a company is growing and gives its customers 30 or 60 days to pay. To cover payroll, it takes an MCA. The debits start right away, but the customers pay a month or two later. When the debits outrun the deposits, a second MCA covers the first one, and then a third.
1st Commercial Credit has written about a staffing agency that ended up with five stacked MCAs: it was profitable, but the debits were larger than its deposits and it couldn't make payroll. MCAs weren't built to be a running cash flow solution for a company that sells on credit terms. Factoring was.
Getting out of an MCA with factoring
If you have enough unpaid invoices from creditworthy customers, the first factoring funding can pay off the MCA, and from then on your cash comes from your invoices instead of going out in debits. The best time to do it is before the debits outgrow your deposits.
Second position factoring doesn't work behind an MCA: it's built for bank and SBA term loans. With an MCA, the usual way out is paying it off. If the funders won't negotiate and the business is in trouble, 1st Commercial Credit also works with debtor-in-possession factoring under Chapter 11. That's a conversation to have with your attorney.
What Texas's 2025 law changed
- Texas HB 700, now Chapter 398 of the Finance Code, regulates commercial sales-based financing: advances you pay back as a percentage of your sales or revenue.
- Providers and brokers have to register with the Office of Consumer Credit Commissioner (OCCC), and offers under $1 million come with required disclosures.
- They can't set up automatic debits from your bank account unless they hold a first-priority perfected security interest in that account.
- The law says sales-based financing is not an account purchase transaction, the category for buying receivables, which is what factoring does.
More detail on the Texas page. This is general information, not legal advice.
Questions owners ask me
Is a merchant cash advance a loan?
It depends on how the contract is written and on state law. Texas regulates it as commercial sales-based financing, with registration and disclosure rules. Factoring is different: it's the purchase of invoices you already issued.
Can I factor if I already have an MCA?
Often, yes, if your invoices are enough to pay it off. Tell me upfront: it changes how the first funding is structured.
Is factoring cheaper than an MCA?
1st Commercial Credit calls factoring the more affordable option for companies that sell on credit terms. Still, compare dollars on your own numbers before you decide.
Do I need good credit for factoring?
Not necessarily. Factoring looks mainly at your customers' credit, since they're the ones who pay the invoices.
How many debits come out of your account each week?
Tell me what you owe on the MCA and what your customers owe you. I'll tell you if factoring can take it out, and how.
Also read: what factoring really costs · second position factoring · all guides