What Is MCA Reconciliation—and Can It Lower My Payments?
One of the most important provisions in many merchant cash advance agreements is also one that business owners frequently don't know exists.
It's called reconciliation.
If your MCA payments were established when revenue was much higher than it is today, a reconciliation provision may provide a mechanism for adjusting payments to better reflect your actual receivables.
But whether reconciliation is available—and what it actually requires—depends on your agreement.
Why Reconciliation Exists
A merchant cash advance is commonly structured as a purchase of a specified percentage of a business's future receivables.
For example, a funder might purchase 12% of future receivables until it receives the total purchased amount.
Instead of calculating 12% every day, however, the parties may establish a fixed daily ACH withdrawal based on estimated revenue.
That's where reconciliation becomes important.
If the business was generating $200,000 per month when the advance began but revenue subsequently falls to $120,000, the fixed ACH amount may no longer correspond to the percentage of receivables described in the agreement.
A reconciliation provision may allow the merchant to request an adjustment.
Reconciliation Isn't the Same as Asking for a Favor
Business owners sometimes approach a funder and say:
"Business is down. Can you please lower my payment?"
That's a request for accommodation.
Invoking a contractual reconciliation provision can be something different.
If the agreement provides a mechanism for adjusting payments based on actual receivables, the merchant may be asking the funder to follow a process contained in the contract itself.
That distinction can matter.
Read the Actual Provision
Not every MCA agreement contains the same reconciliation language.
A provision may specify:
How a reconciliation request must be submitted
What financial records must accompany it
How frequently reconciliation can be requested
How quickly the funder must respond
Whether payments can increase as well as decrease
How the appropriate payment is calculated
The details matter.
Simply knowing that your contract contains the word "reconciliation" isn't enough.
Why Reconciliation Matters Beyond the Payment Amount
Reconciliation provisions can also be relevant to understanding the nature of the MCA transaction itself.
If an agreement is genuinely based on the purchase of future receivables, the relationship between the business's actual receivables and the amount collected by the funder may be important.
That doesn't mean every reconciliation clause produces a legal defense or guarantees a reduced payment.
It means the provision deserves careful attention when analyzing an MCA agreement.
What If the Funder Refuses?
A funder's response may depend on the agreement, the documentation submitted, the merchant's payment history, and other circumstances.
That's why reconciliation requests should be made thoughtfully and documented carefully.
If your revenue has declined significantly and the fixed withdrawals are consuming substantially more of your receipts than expected, gather your recent bank statements and processing information and review the reconciliation language before deciding how to proceed.
The Bottom Line
If your MCA payment was established when business was stronger and revenue has since fallen, don't assume the original fixed payment is necessarily the only payment contemplated by your agreement.
Read the reconciliation provision.
Understand what documentation it requires.
And determine whether it provides a mechanism for bringing payments back into line with actual business performance.
Davenport Law regularly reviews MCA agreements and reconciliation provisions for businesses experiencing cash-flow pressure.
If your MCA payments no longer reflect your current revenue, call (214) 382-0105 or contact our team to discuss your situation.
This article provides general information and is not intended as legal advice. The rights and obligations involved in any MCA transaction depend on the applicable agreements, facts, and law.
