Merchant cash advance reconciliation is a review that many advance contracts allow, in which the funder compares what it collected through the set daily or weekly payment with the agreed percentage of the business's actual receipts over a period, then corrects the difference. To make an MCA reconciliation request, you find the reconciliation clause in your agreement, send the funder written notice the way the contract asks, attach the bank statements for the period being reviewed, and keep paying while the funder checks the numbers. Depending on the wording, the result can be a credit, a refund, a new payment amount for the next period, or, where the contract runs both ways, a charge when receipts came in higher than estimated. The purchased amount does not change, only how fast it is collected.
What MCA reconciliation is
Every merchant cash advance has two numbers that describe how it is repaid. The first is the specified percentage, sometimes called the split rate, which is the share of your receipts the funder bought. The second is the set daily or weekly payment the funder debits, which it works out at signing by applying the specified percentage to your usual deposits, so the payment is an estimate of the agreed share. Our guide to how a merchant cash advance works walks through the offer, the purchase price and the purchased amount in order.
New York's disclosure rule gives a sample of how a funder explains that estimate to a business before it signs: "We based your preset daily payment of $75 upon our estimate of 15% of your total income, based upon average monthly income of $15,000 for the last three months." Reconciliation is the step that checks the estimate after the fact. For a given period, the funder adds up what came into the account, multiplies it by the specified percentage, and compares the result with what it debited.
The purchased amount and the factor rate stay the same through a reconciliation, and nothing is forgiven. Only the timing changes, because a smaller payment collects the same total over more weeks. Our article on how factor rates set the total you repay covers why time does not change the cost of an advance.
Why many advances include a reconciliation clause
A merchant cash advance is written as a purchase of future receivables. The funder pays a purchase price now for a set dollar amount of sales the business has not made yet, and the funder takes the risk that those sales come in lower or slower than expected. A reconciliation clause is how a contract with a set payment keeps that structure, since it ties what the business pays back to what the business actually takes in.
Courts treat the clause as one sign that an advance is a sale. In a 2020 decision, New York's Appellate Division, Second Department said courts usually weigh three factors when deciding whether an advance is a sale or a loan, and the first is whether the agreement has a reconciliation provision. In that case the clause said the funder "may, upon [the merchant's] request, adjust the amount" at its "sole discretion," and the court weighed that wording, along with other terms, against the funder. Our article on MCA debt relief covers the other two factors.
State law describes the same mechanism in plain terms.
- Virginia's sales-based financing statute, Va. Code section 6.2-2228, defines sales-based financing as repaid as a percentage of sales or revenue, including deals repaid as a fixed payment with a reconciliation process that adjusts the payment to a percentage of sales or revenue.
- New York's commercial finance disclosure rule, 23 NYCRR Part 600, defines a true-up mechanism as a contract with a pre-set periodic payment that lets the business request, or the funder start, adjustments to the payment, credits to the business, or charges to the business, so the total paid more closely reflects the split rate.
- California's commercial financing disclosure regulation, 10 CCR section 900, uses nearly the same definition and says a true-up can be a payment made to the business, a charge assessed to the business, or an adjustment to its periodic payments.
For an advance with a set payment, the New York rule also has the disclosure explain how the payment was calculated, describe the true-up mechanism and name the part of the contract that sets out its terms. If your business is in New York or California, the disclosure form that comes with an offer is the quickest way to find your reconciliation clause.
California's financial regulator, the DFPI, made a related point in a 2020 advisory to small businesses. Where an advance requires a fixed daily amount, the business typically has a right to reconcile those payments to its actual income, and it usually has to tell the funder about the drop in revenue to get the adjustment.
How to make an MCA reconciliation request, step by step
- Read the reconciliation clause and the notice clause together. Note who can start a reconciliation, the period it covers (often a calendar month or a set number of days), how often you can ask, how many business days the funder has to answer, which documents it wants, and whether the result is a refund, a credit or a new payment. Check whether the clause works in both directions.
- Pull the bank statements for the review period from every account the contract counts. If the agreement covers card settlements through a processor, get the processor statements for the same dates. Send full bank statements so the funder can match each deposit.
- Do the math before you send anything. Add up the receipts for the period, multiply by the specified percentage, and compare that figure with the total the funder debited. Leave out transfers between your own accounts and loan or advance proceeds if the contract says receipts exclude them.
- Send the request in writing to the address or email the notice clause names. Quote the clause by its section number, state the period, give your total receipts, the agreed share, the amount debited and the difference, and attach the statements. Add a sentence on why revenue fell, such as a slow season or a closure for repairs.
- Keep paying the set amount while the request is reviewed. Stopping payments while you wait can put the business in default under the agreement, and some agreements end the right to a reconciliation once a default occurs.
- Answer follow-up requests quickly, such as a request for read-only bank access or statements from a second account.
- Get the result in writing. The answer should say the corrected amount for the period, whether the difference is refunded or credited against future payments, the new payment amount, and the date it starts.
- Repeat the request at the next interval the contract allows if receipts stay low, since each reconciliation covers only the period you asked about.
If the contract gives no deadline for the funder's answer, ask in your notice for one within a set time, such as ten business days, and follow up in writing if it passes. Keep every notice, statement and reply in one folder.
A merchant cash advance reconciliation worked through in dollars
The figures below are an example, not an offer. A business takes an advance with a purchase price of $80,000 and a factor rate of 1.35, so the purchased amount is $108,000. The specified percentage is 10%. At signing, the business usually deposits about $132,000 a month, or about $6,000 a business day across 22 business days, so the funder sets the payment at $600 a business day. The contract allows a reconciliation once a calendar month, in both directions.
| Month | Deposits | 10% of deposits | Debited | Difference |
|---|---|---|---|---|
| Months 1 to 3 (each) | $132,000 | $13,200 | $13,200 | $0 |
| Month 4 | $77,000 | $7,700 | $13,200 | $5,500 over the agreed share |
| Month 5 | $154,000 | $15,400 | $7,700 | $7,700 under the agreed share |
For three months receipts match the estimate, and the funder collects $39,600. In month 4 deposits drop to $77,000, about $3,500 a business day. The funder still debits 22 payments of $600, which is $13,200, while 10% of actual receipts is $7,700. The business sends a reconciliation request with the month's statements, and the funder credits back the $5,500 difference and resets the payment to $350 a business day for the next period.
After that review the funder has collected $47,300 of the $108,000, so $60,700 is left. At $350 a day that remainder takes about 173 business days if receipts stay at the month 4 level, against about 101 business days at $600. The total does not move. The business pays the same $108,000, and the advance runs longer.
Month 5 shows the other side. Sales recover to $154,000, about $7,000 a business day, while the reset payment collects $7,700. Ten percent of receipts is $15,400, so the funder has collected $7,700 less than the agreed share. Under a two-way clause the funder can start its own true-up, charging the difference or raising the payment to about $700 a day for the next period. This is what the New York and California definitions mean by charges to the business.
What to check in a reconciliation clause before you sign
Every funder writes the clause its own way. These are the lines we read with an owner on every offer.
- Check whether the clause says the funder shall adjust the payment or only that it may adjust it at its discretion. The 2020 New York decision quoted above turned partly on that word.
- Check who can start a reconciliation and in which direction it runs. A clause that only the business can start is different from one where the funder can also charge for a shortfall.
- Check the review period, how often you can ask, and how many business days the funder has to answer.
- Check what counts as receipts. California's regulation refers to the payment channel used to measure a true-up, such as deposits into a bank account or payments through a processor, and the contract should say which one applies to you.
- Check which documents the funder wants and whether it requires bank login access instead of statements.
- Check whether the difference comes back as a refund, as a credit against future payments, or only as a lower payment going forward.
- Check for a minimum payment. New York's sample disclosure gives the example "You must pay us a minimum of $2,000 per month under the contract," and a minimum sets a floor on what any reconciliation can do.
- Check whether any fee applies to a reconciliation request, and whether a missed payment or a second advance from another funder ends the right to ask.
The offer letter should name the specified percentage next to the payment. If a $600 daily payment is described as 10% of receipts, the funder is estimating about $6,000 a day in deposits, which you can check against your own statements. Our post on how we beat an existing MCA offer shows how we compare offers line by line, including this one.
When reconciliation is not the right fix
A reconciliation answers one problem, which is receipts that came in below the estimate the payment was built on. If sales are steady and the strain comes from several advances debiting the same account, the clause does not help, because each payment already matches its share. MCA consolidation fits that case. A new funder pays the existing funders directly and replaces their debits with one weekly or monthly payment on a longer term, and the total may not go down. Our consolidation page covers what funders look at.
If the current advances finish within a few months, a reverse consolidation deposits money into the account each week to cover the existing debits, and the business repays the new funder on a slower schedule. If a payment has already been missed or a funder has declared a default, the order of options changes, and our MCA debt relief guide lays them out.
Applying for revenue-based financing through us
We place revenue-based financing, which is a merchant cash advance, from $5,000 to $2,000,000. A funder buys a set amount of future sales, sizes the advance on the business's usual revenue, and collects a set daily or weekly payment until the agreed total is paid. Most applicants are funded within one to two business days of choosing an offer. You fill out a short form and add four months of business bank statements, with nothing to pay to apply or to see offers.
The funders we work with generally look for about a year in business and about $20,000 a month in deposits. If you're not there yet, apply anyway, because some funders work with newer or smaller businesses and we'll tell you what's realistic. When offers come back, we put them side by side and go through the factor rate, the payment, the early payoff terms and the reconciliation clause with you before anything is signed. You can start an application or call (818) 351-0225 to talk it through.
Questions about MCA reconciliation
What does reconciliation mean in payment?
In payments, reconciliation means comparing two records of the same money and correcting any difference between them, and in a merchant cash advance it means comparing what the funder debited over a period with the agreed percentage of the business's actual receipts for that period, then adjusting the payment, crediting the business, or, under a two-way clause, charging it.
What is an MCA repayment?
An MCA repayment is the amount the funder collects toward the purchased amount, usually a set daily or weekly debit from the business bank account that the funder sizes on the business's usual deposits and the specified percentage, and it continues until the full purchased amount has been collected.
What is a merchant cash advance example?
As an example, a funder pays a business $80,000 for $108,000 of its future receipts at a factor rate of 1.35 and a specified percentage of 10%, then debits $600 each business day based on usual deposits of about $132,000 a month until the $108,000 has been collected.
What happens if you can't pay MCA debt?
If payments cannot be made, a missed debit can be treated as a default under the agreement, which can make the remaining balance due and lead to collection, so the first step is to contact the funder before a payment is missed, and to request a reconciliation in writing if receipts have fallen below what the payment was based on.
What is a cash reconciliation statement?
A cash reconciliation statement is a document that lines up the cash a business recorded with what its bank statement shows and explains each difference, and an MCA reconciliation request works the same way, setting total receipts, the agreed share and the amount debited side by side with the bank statements attached.
