[callmeed]

In case any of you think this is something new, its not. It's called Factoring and its been around since the renaissance:

https://en.wikipedia.org/wiki/Factoring_(finance)

Of course, when Shopify, Square, and PayPal put their startup-land spin on it and call it "Capital", it sounds cool and new (the fact that they wont use the term says a lot). IMO factoring should only be considered as a last resort of capital or when you have some large/long-term enterprise contracts and need to ramp up production fast (eg Wal-Mart wants 100K of your widgets or the State of CA just ordered $4M worth of software from your 3-person shop). Even then, there are usually other sources of capital with better terms available.

[aristus]

I used to work for a cashflow factor in the late 90s. It's a legit business need, but with few legit players. Almost like payday loans for business. It's due for a brand uplift and some visibility.

[narrowrail]

I always associated factoring with paying someone to handle Accounts Payable at a big company (which is your customer) with an Accounts Payable dept that is difficult to deal with for a small business (that don't have Accounts Receivable). These factoring companies are handed invoices for services rendered and when they collect they give you ~96%.

This is different because Shopify is the storefront/ payment processor, they can collect money when the product is bought; they don't have to negotiate with sophisticated people on when the payment can be made. Shopify is fronting the capital before it's even been collected, where this is not the case in the typical factoring company's business.

[notahacker]

Here in the UK, every other fintech startup seems to be based around factoring or invoice receivables financing...

If you're a business which experiences cashflow issues, I'm suspect it works out cheaper than a revolving credit facility or a series of regular loans, but like any flexible credit facility, it's a lot cheaper if you don't need to use it at all.

[roymurdock]

I wonder what happens if a company goes bankrupt. Does the merchant cash advance contract give shopify some claim to the company's assets?