You did the work. You sent the invoice. Payment terms say sixty days. Your suppliers do not care about your payment terms.
That gap is a timing problem, not a profitability problem, and there are two common products sold to fix it. They get mentioned in the same breath. They are not the same thing.
Lobi Space is not a lender. This is a plain comparison so you can tell them apart. The wider picture is in how small business funding works.
Invoice factoring
You sell an unpaid invoice to a factoring company at a discount. They advance most of the face value now, collect from your customer later, and release the rest minus their fee.
The factor is underwriting your customer as much as you. If you invoice creditworthy businesses, factoring can be available even when your own credit is thin.
Two versions matter:
- Recourse. If your customer never pays, you buy the invoice back. Cheaper, and the risk stays with you.
- Non recourse. The factor absorbs certain non payment risk. More expensive, and the exceptions in the contract are the whole story.
There is also the question of notification. In many arrangements your customer is told to pay the factor directly. Decide how you feel about that before you sign, because it touches your customer relationship.
Merchant cash advance
An advance company buys a slice of your future revenue. You receive cash now and repay through a fixed daily or weekly debit, or a percentage of card sales, until the agreed total is delivered.
It is fast and widely available. It is also, in practice, the most expensive money in this guide. Pricing is usually a factor rate, so the cost does not shrink when you repay quickly.
An advance is generally treated as a purchase of receivables rather than a loan, which is why the disclosures look different from a loan agreement. Read it as a contract, not a rate.
The honest comparison
- What is being funded. Factoring uses invoices you have already issued. An advance uses revenue you have not earned yet.
- Who is judged. Factoring leans on your customers. An advance leans on your sales volume.
- Cost. Factoring fees are typically a percentage of invoice value over time. Advance pricing is typically a factor rate on the full amount, and is usually higher.
- Cash flow impact. Factoring converts one invoice. An advance takes money every day until it is done.
- Best fit. Factoring suits B2B businesses with real payment terms. Advances are sold hardest to card heavy retail and restaurants.
Read these clauses before you sign
1. Total repayment in dollars, not the rate.
2. Frequency of debit, and whether it changes with sales volume.
3. Recourse terms, reserve amounts, and when the reserve is released.
4. Minimum volume commitments and how long the contract runs.
5. Termination terms and any exit fee.
6. Whether the agreement bars you from taking other funding.
That last one matters. Stacking advances is a fast way to break a contract you already signed and to get declined everywhere else.
A cheaper question first
Before either product, ask whether the timing problem can be fixed without buying money.
- Invoice the day work is delivered, not at month end.
- Ask for deposits on larger jobs.
- Offer a small discount for payment in ten days.
- Chase late invoices on a schedule instead of when you notice.
Sometimes the answer is still funding. Often it is process.
When Lobi Capital opens, you will be able to describe what you need and compare paths in one place. Join the launch list to hear when it does.
Frequently asked questions
Is a merchant cash advance a loan?
It is generally structured as a purchase of future receivables rather than a loan, which is why the paperwork and disclosures differ. Practically, you receive cash now and repay more later, so compare total repayment.
Will my customers know I am factoring invoices?
Often yes. Many factoring arrangements notify your customer to pay the factor directly. Non notification arrangements exist but are less common and usually require a stronger business.
Which is cheaper, factoring or a cash advance?
Factoring is usually cheaper for businesses that invoice other businesses. Advances are typically the most expensive option, because a factor rate on the full amount does not shrink with fast repayment.
Can I use factoring if my own credit is poor?
Sometimes. Factors weigh your customers' ability to pay heavily, so businesses with weak owner credit but strong commercial customers are sometimes approved. Terms still vary by provider.
