Cash advances are an important financing tool for French companies that urgently need cash. A source of short-term financing, cash advances can help companies maintain a healthy cash flow in the face of payment delays, meet various financial or business obligations, or seize an investment opportunity.

This article explains what cash advances are, why they’re important, and how they can be useful to French companies. It also addresses the advantages and disadvantages of cash advances, how to obtain them, and how to repay them.

What’s in this article?

• What is a cash advance?
  
• What is the purpose of a cash advance?
  
• Why ask for a cash advance?
  
• What are the advantages of cash advances?
  
• What are the disadvantages of cash advances?
  
• When to ask for a cash advance
  
• Which businesses are eligible for cash advances in France?
  
• What cash advance solutions are available to businesses?
  
• Obtaining a cash advance
  
• How Stripe Capital can help
  

What is a cash advance?

A cash advance is a short-term financing option for businesses. It provides immediate access to cash to meet urgent liquidity needs and maintain financial stability during critical periods. The advance is then repaid according to the schedule and terms agreed upon with the financial institution.

What’s the difference between a cash advance and a traditional bank loan?

A cash advance is usually easier and faster to obtain than a bank loan. Cash advances make it possible for businesses to respond to short-term needs as opposed to long-term ones (e.g., financing investments, financial structuring). In addition, the guarantees required for a cash advance are often less stringent than for a traditional loan.

What is the purpose of a cash advance?

Cash advances bridge temporary gaps in cash flow, helping improve business liquidity and ensure the continuity of day-to-day operations. Cash advances address an urgent need for cash and help companies avoid being exposed to financial difficulties (e.g., late payments, penalties, lost opportunities).

Why ask for a cash advance?

There are several reasons a French business owner might choose to request a cash advance. An urgent need for funds is not necessarily a sign of poor management; it could result from external circumstances that impact a company’s cash flow and result in an unexpected shortfall.

Businesses might need a cash advance for several reasons, such as:

• Negative cash flow: When cash outflow exceeds inflow, a cash advance makes it possible for a business to continue to pay fixed costs (e.g., salaries, social security contributions, rent, loan repayments, VAT payments).
  
• Significant payment delays: Long payment delays or late payments from customers can prevent a company from paying its suppliers on time or continuing operations.
  
• Spike in activity: During a peak period, it might be necessary to hire additional staff, pay overtime, or increase inventory to control expenses and cash flow.
  
• Capitalizing on opportunities: For a large order or request for proposals, it might be necessary to purchase raw materials or hire subcontractors in order to seize the opportunity.
  
• Short-term investment: A business can use a cash advance to immediately finance projects that will not generate revenue until later: purchase of equipment, marketing or advertising campaigns, digitalization of tools, launch of a new product, etc.
  
• Unforeseen events: In the event of rising raw material prices, equipment breakdowns, delivery delays, or staff shortages, a cash advance can help a business meet temporary needs.
  

What are the advantages of cash advances?

Cash advances offer numerous advantages to businesses in urgent need of liquidity:

• Speed: Cash advances can be obtained very quickly (within several days), depending on the solution the company chooses.
  
• Accessibility: Cash advances are easier to obtain than traditional bank loans and require fewer procedures and guarantees.
  
• Flexibility: A cash advance does not need to be dedicated to a specific purpose and is, therefore, more flexible.
  
• Short-term nature: A cash advance is a short-term solution, with quick disbursement and repayment.
  
• Payment security: Fixed expenses can be partially or fully covered, depending on the amount of the cash advance.
  

What are the disadvantages of cash advances?

Despite their advantages, cash advances also have some disadvantages that are important to consider before requesting an advance:

• Cost: The cost of a cash advance is often higher than the cost of long-term external financing.
  
• Risk of dependency: Companies might see cash advances as quick fixes and use them too often. This might reflect a structural problem that’s important to address and resolve proactively.
  
• Variable eligibility conditions: The amount, acquisition cost, and acquisition or repayment period might vary significantly, depending on the company’s profile and financial situation.
  
• Ineffectiveness in cases of serious difficulty: Cash advances are not an efficient solution when a French company is experiencing serious financial difficulties.
  

When to ask for a cash advance

It’s important to ask for a cash advance before your cash flow is negative. There are several warning signs that can indicate an immediate need for liquidity:

• A negative cash flow forecast
  
• Working capital needs that exceed revenue
  
• Upcoming jump in fixed costs
  
• First-time late payments
  

Which businesses are eligible for cash advances in France?

Cash advances are available to all French companies that urgently need cash, regardless of industry or size—including microbusinesses, small and medium-sized enterprises (SMEs), and corporations. However, depending on the situation, specific conditions might apply.

What cash advance solutions are available to businesses?

Cash advances for businesses take various forms. The most common options include:

• Bank account overdrafts
  
• Credit facilities
  
• Factoring
  
• Dailly assignment of receivables
  
• Bank discounting
  

Let’s look at each of these solutions:

Bank account overdrafts

An authorized bank account overdraft allows a company to temporarily maintain a negative balance to cover urgent cash needs. For a maximum period of one year, the company can continue to execute bank transactions, up to a limit agreed upon in advance with the bank. In exchange, the company must pay overdraft fees (debit interest), a commission on the highest overdraft amount, and any processing fees.

Credit facilities

A credit facility is a cash advance solution similar to a bank account overdraft. Also authorized by the company’s bank, it provides short-term overdraft protection, often for up to 15 days per month, for an amount agreed upon with the bank. However, since the risk of nonrepayment is greater, the company must pay higher interest rates than for a traditional overdraft.

Note: The short authorized overdraft period means that, for the remainder of the month, the account balance must be positive; if not, overdraft or additional fees might be charged, the credit facility might not be renewed, or overdrafts might not be authorized.

Factoring

Factoring is a type of financing where a company signs an agreement with a factoring company to have immediate access to cash, in exchange for the transfer of multiple trade receivables. The factoring company buys trade receivables from the company and is responsible for obtaining payment directly from customers, in exchange for a commission.

Note: Reverse factoring also exists. In this case, a business uses a factoring company to pay a supplier’s invoice in advance. Reverse factoring lets a business experiencing financial difficulties pay a supplier before the due date without using its cash. It then repays the factor on the original payment due date.

Dailly assignment of receivables

Dailly assignment, similar to factoring, is a French financing mechanism whereby a business assigns trade receivables to a bank to obtain a cash advance. This cash advance is formalized by a Bordereau Dailly—a French legal document—that summarizes the assigned receivables (e.g., invoices, acknowledgements of debt) allowing for a company to obtain an advance quickly. The business must repay the bank on the date the invoice is paid by the debtor.

Bank discounting

Discounting is an agreement between a business and a credit institution that authorizes immediate payment of certain commercial paper not yet at maturity, in exchange for cash.

The business executes a bill of exchange (a written order for payment on a set date agreed upon in advance), or an electronic bill of exchange, with a customer. The bill of exchange is then purchased by a credit institution in exchange for a percentage of the amount due plus various fees (e.g., discount interest, processing fees). The credit institution becomes the owner of the commercial paper and must request payment from the debtors when it reaches maturity.

Obtaining a cash advance

To obtain a cash advance, a French company must do the following:

• Evaluate its cash requirements and the urgent items to be covered: These include late customer payments, fixed costs, recruiting costs during peak activity, and others.
  
• Determine the best financing solution and financial partner: These depend on the amount obtained, payment and repayment terms, interest rates, and other costs.
  
• Prepare the application: Demonstrate the company’s financial health and its repayment ability, and gather the required financial documents, such as the cash flow forecast.
  
• Obtain application approval.
  

Once the cash advance is approved, the cash will be deposited in the company’s account and can be used as needed for urgent expenses. The company must then repay the advance as agreed upon with the financial partner (e.g., through automatic debits, deductions from future income, receivables).

How Stripe Capital can help

Stripe Capital offers revenue-based financing solutions to help your business access the funds it needs to grow.

Capital can help you:

• Access growth capital faster: Get approved for a loan or merchant cash advance in minutes—without the lengthy application process and collateral requirements of traditional bank loans.
  
• Align financing with your revenue: Capital’s revenue-based structure means you pay a fixed percentage of your daily sales, so payments scale with your business performance. If the amount that you pay through sales doesn’t meet the minimum due each payment period, Capital will automatically debit the remaining amount from your bank account at the end of the period.
  
• Expand with confidence: Fund growth initiatives such as marketing campaigns, new hires, inventory expansion, and more—without diluting your equity or personal assets.
  
• Use Stripe’s expertise: Capital provides custom financing solutions informed by Stripe’s deep expertise and payments data.
  

Learn more about how Stripe Capital can fuel your business growth, or get started today.