Reconciliation
Reconciliation is the contractual MCA right allowing merchants to request payment adjustments if actual revenue falls below projected levels — a critical feature distinguishing MCA from loans by ensuring repayment scales with merchant revenue rather than imposing fixed payment obligations regardless of business performance.
Why This Matters
Reconciliation is the legal cornerstone of MCA's purchase-versus-loan characterization. The mechanics: merchant submits revenue documentation (typically bank statements) showing actual revenue below projection, funder reviews and adjusts daily/weekly payment to maintain consistent percentage-of-revenue holdback. Without genuine reconciliation, courts have recharacterized MCA as disguised lending subject to usury laws. Most modern PSAs include explicit reconciliation provisions with defined request procedures, documentation requirements, and adjustment timelines. Sophisticated merchants exercise reconciliation rights during revenue downturns; less-sophisticated merchants often miss the opportunity.
Frequently Asked Questions
Frequently Asked Questions
How does MCA reconciliation work in practice?
Merchant submits revenue documentation showing actual revenue below projection used at funding. Funder reviews documentation and adjusts payment amount or holdback percentage. Most reconciliations result in reduced daily/weekly payment for a defined period until revenue recovers. Rare denial or pushback from funders, but documentation requirements vary.
Why is reconciliation legally important for MCA?
Reconciliation rights demonstrate the genuine purchase-of-receivables nature of MCA — payments scale with actual revenue rather than requiring fixed repayment regardless of merchant performance. Without reconciliation, MCA contracts risk recharacterization as loans subject to state usury laws and lending regulations.