What a Reconciliation Clause Is and Why It Matters
A merchant cash advance is sold as a purchase of a share of your future sales, so in principle your payments should rise and fall with your revenue. Many MCAs are collected as a fixed daily or weekly debit for convenience. A reconciliation clause is what connects that fixed debit back to your actual sales: it lets you ask the funder to adjust payments to the agreed percentage of what you really took in.
Reconciliation terms vary widely. Some agreements adjust automatically; most require a written request, recent bank statements, and a response window. Some require you to keep paying the current amount while the request is reviewed, and missing a payment during that window can itself be a default. Read your agreement's reconciliation and default sections before you need them.
When deciding whether an MCA is really a loan, New York's Appellate Division in LG Funding v. United Senior Properties of Olathe (2020) looked at three factors: whether the agreement has a real reconciliation provision, whether it has a finite term, and whether the funder can still collect if the business goes bankrupt. If repayment is absolute rather than tied to your receipts, a court may treat the deal as a loan. This is a legal question for an attorney, but it shows why reconciliation rights are worth using.
How to Request a Reconciliation, Step by Step
Find the clause
Locate the reconciliation and default sections in your agreement. Note what the funder requires: notice method, documents, and deadlines.
Gather proof of lower sales
Pull the bank statements, and card processing statements if relevant, for the period the clause specifies. The goal is to show actual receipts are below what the fixed payment assumes.
Ask in writing
Send a dated written request that cites the clause, attaches the documents, and states the adjusted payment you calculate. Keep copies of everything.
Keep paying unless the agreement says otherwise
If the agreement requires payments to continue during review, keep paying. Stopping unilaterally is the most common way a manageable situation becomes a default.
Follow up and escalate calmly
If the request is denied or ignored, ask for a temporary modified payment plan in writing. If the funder still won't engage, talk to a business attorney before you change anything.
What Counts as a Default
Default terms are set by your agreement, so the list below is what agreements commonly include, not a rule for every contract.
Missed or stopped payments. Failing to make the scheduled remittance, or telling your bank to stop the debits.
Blocking, reversing, or redirecting payments. Changing bank accounts or card processors without the funder's consent so the remittance can't be collected.
Repeated insufficient funds. Debits returned because the account is empty, especially several in a row.
Taking another advance against the same sales. Many agreements restrict stacking without the first funder's consent.
Selling or closing the business, or transferring its assets, without notifying the funder as the agreement requires.
Misstatements in the application, such as undisclosed existing advances or inaccurate revenue figures.
What Happens If You Default
| What can happen | What it means for you |
|---|---|
| The remaining balance can become due | Many agreements let the funder demand the full unpaid amount at once, often with default fees. |
| Your customers or processor may be contacted | MCA funders usually file a UCC lien on receivables. Under Article 9 of the Uniform Commercial Code, a secured party can notify the businesses that owe you money to pay it directly. |
| Your personal guarantee can be enforced | Most MCAs include a personal guarantee, so the funder may pursue you personally, not just the business. |
| Collections or a lawsuit | Funders may use collection agencies or sue. Confessions of judgment are restricted in New York for out-of-state businesses and are void in Texas and Virginia MCA contracts. |
| Credit effects | A judgment or collection activity can affect business credit, and personal credit if the guarantee is enforced. |
General information, not legal advice. What a funder can do depends on your agreement and your state's law.
Your Options If You Can't Keep Up
- Request reconciliation if your sales really have dropped; it is the right built into many MCAs for exactly this situation.
- Ask for a written modification, such as a lower payment for a set number of weeks.
- Consolidate several advances into one payment, either with a lump-sum payoff or a reverse consolidation. See MCA debt consolidation and relief options.
- Refinance into a term loan if your credit and financials qualify; a fixed payment over a longer term is usually far cheaper. Compare business term loans.
- Talk to a business attorney before stopping payments, negotiating a settlement, or considering bankruptcy.
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Red Flags in MCA Debt Relief Offers
Businesses in trouble with advances are a target for aggressive debt relief marketing. Be wary of anyone who:
- Tells you to stop paying your funders, block their debits, or move to a new bank account
- Charges fees before doing anything. In Georgia, funding brokers are prohibited from collecting advance fees
- Promises to make your MCA debt disappear or guarantees a settlement amount
- Won't put the total cost and terms in writing, or won't give a real business address and phone number
For state-specific protections, see merchant cash advance rules in New York, Texas, and Virginia.
Frequently Asked Questions
What happens if I default on a merchant cash advance?
It depends on your agreement and state law, but funders commonly demand the remaining balance plus default fees, enforce the UCC lien by contacting your customers or processor, pursue the personal guarantee, and use collections or lawsuits.
Can I stop MCA payments if my sales drop?
Not on your own. Use the reconciliation clause instead: send a written request with bank statements showing lower receipts, and keep paying during the review if your agreement requires it. Stopping payments without the funder's agreement is usually a default.
What is a reconciliation clause in a merchant cash advance?
A provision that lets you ask the funder to adjust fixed daily or weekly payments to the agreed percentage of your actual sales. Terms vary, so check the notice, document, and timing requirements in your agreement.
Can an MCA company come after me personally?
Often yes. Most merchant cash advances include a personal guarantee, so if the business defaults the funder may try to collect from you personally, subject to your agreement and state law.
Is a merchant cash advance a loan if it ends up in court?
Courts look at the real substance of the deal. In New York, courts consider whether the agreement has a real reconciliation provision, a finite term, and recourse if the business goes bankrupt. If repayment is absolute, a court may treat it as a loan. Ask an attorney about your specific agreement.
Should I use a debt relief company for my MCA?
Be careful. Avoid anyone who tells you to stop paying or switch bank accounts, charges fees before doing anything, or guarantees results. A business attorney can review your agreement and options directly.