A cash advance is when a lender, such as a bank or factoring company, sends cash up front to a borrower to cover short-term costs. Both individuals and businesses benefit from cash advances, which are considered a type of short-term loan. Credit card companies often issue a cash advance to its customers, albeit with high interest rates and fees.
Invoice factoring involves cash advances as well. Once a third-party factoring company buys an invoice from a business, the factor then sends a cash advance – typically 80-90% of the full invoice value – to the business to help cover short-term costs while awaiting customer payment.