Demand Letter
A demand letter is the formal written notice from a defaulted MCA's funder to the merchant — declaring default, demanding immediate payment of accelerated balance, and notifying intent to pursue collection actions — typically the first formal step in MCA default escalation.
Why This Matters
Demand letters serve dual purposes: legally notifying the merchant of default declaration and creating documented basis for subsequent collection actions. The standard demand letter content: identification of MCA agreement, recitation of default events, declaration of acceleration with full balance due, demand for immediate payment within specific timeframe (typically 5-10 business days), and notification of intent to pursue collection actions including UCC enforcement, judgment proceedings, and asset seizure. Sophisticated merchants engage legal counsel upon demand letter receipt; less-prepared merchants often miss critical response windows that affect later litigation outcomes.
Frequently Asked Questions
Frequently Asked Questions
What should merchants do upon receiving an MCA demand letter?
Engage legal counsel immediately to review default basis and assess negotiation positioning. Respond within stated timeframe (typically 5-10 business days) even if not paying — non-response forfeits negotiation positioning. Initiate workout discussions if business viability supports continued payment in restructured form.
Are MCA demand letters legally required before collection?
Specific notice requirements depend on jurisdiction and contract terms. Most MCA contracts require notice of default and opportunity to cure before acceleration. Demand letters create documented basis for cure period exhaustion that supports subsequent legal action. Funders typically issue demand letters even when not strictly required to maintain documentation strength.