Credit Card Factoring

Credit card factoring is a type of financing that turns your credit card receivables into up-front cash. Although there is some confusion surrounding the term, credit card factoring is the same thing as a merchant cash advance.

Credit Card Factoring vs. Traditional factoring

In traditional factoring, you sell your business’ invoices to a third party called a factor. It is then up to the factor to collect the payment from the customer. The factor typically advances 80% to 90% of the value then provides the rest (minus processing fees) upon receiving payment from the customer. Traditional factoring is also referred to as “accounts receivable financing.” (see also, spot factoring)

Credit card factoring, on the other hand, is not technically considered “factoring”. Rather, it is a cash advance secured by your business’ future credit card sales. To do this, a merchant cash advance company gives you up front cash, then deducts a percentage of your credit card sales each day until the amount is fully paid.

Benefits of Credit Card Factoring

The greatest benefit of credit card factoring is the speed and ease in which you can get financed. Unlike traditional banks, which are slow to lend and have many hoops to jump through, you won’t get turned down if you have bad credit or little collateral. All the advance company needs to see is evidence that your business has daily credit card transactions.

To learn what works best for your business, you can weigh your credit card factoring options with other business loan options through Lendio’s free loan match tool.