When an MCA funder threatens to contact your customersfive responses, in order, 2026

The customer contact threat: what it rests on, and the five responses that follow

You call the shots, but once you miss a payment, the ball is no longer in your court. A mere $1,000 default could result in losing customers or not receiving any of their payments.

Oftentimes, the cash advance funder notifies your customers of the MCA agreement you signed, and then requests that payments be redirected to the funder's bank account. The funding company will collect directly from your customers until they recover the amount you owe or have obtained a judgment. Before the fact, you should review all of the paperwork you've signed to avoid any surprises. Most merchant cash advance (MCA) contracts have language granting the funder the right to contact your customers upon default, but there is recourse available. A qualified merchant cash advance lawyer can determine if your contract is enforceable and stop funders from accessing your accounts receivable.

Defenses to Unauthorized Fund Collection Attempts

Small businesses will often send funders copies of invoices as part of the merchant cash advance application process. These are generally used as proof of sales, which the cash advance company then contacts to demand payment directly if the merchant misses a payment.

Fair Debt Collection Practices Act

The Federal Trade Commission takes violations of the Fair Debt Collection Practices Act seriously. Although the act generally does not protect business-to-business agreements, some courts have enforced it and granted remedies. Most advances are paid via Automated Clearing House ("ACH"), but when cash advance providers communicate with businesses, they open themselves up to legal challenges.

Under the FDCPA, collection companies and cash advance providers are required to be fair when contacting other businesses. Harassment occurs when cash advance funders call businesses repeatedly and annoy the owner - in the worst of cases, cash advance companies have been known to call merchants' places of employment to contact the business owner. They cannot communicate with your employees to cause mental or financial distress either. Most courts limit communication to standard work hours. And if you make a written request to the funder to stop communicating with you, the company must abide by your order, though the funder is not bound to stop if they did not receive the written order.

An owner considering this defense should contact an attorney to determine if the FDCPA will serve as a bar to collections on a merchant cash advance.

Interest rates violate your state's laws

Although interest rates are supposed to be simple, they're often buried deep in contracts with plenty of legal jargon. Interest rates can be sky-high, and states limit how much of a premium you can be charged. If the amount you have been charged exceeds what your state permits, your lawyer can argue that your contract is void, making the agreement unenforceable. Your customers will not need to pay the advance company directly.

Unauthorized filing of a UCC lien

Typically, before the contract is signed, the funder requests your approval for a Uniform Commercial Code ("UCC") filing; you approve it and it's entered with the Secretary of State. UCCs show a public record of collateral agreements in financial transactions. Once a UCC lien is filed, cash advance providers usually take collateral and get access to your customers' payments.

If the funding company did not first send you a request for consent to file the lien, you may be able to halt their actions against your business. Depending on your state, your UCC lien may have expired or been falsely filed, or the funder failed to follow the requisite procedure for filing. Contact an attorney as soon as possible.

Customers are protected

Under 9-406(a) of the UCC, customers are usually protected when making payments to cash advance companies. This provision generally states that if you sell a contract to another company, you are permitted to collect the customer's payments and not be sued for fraud.

Section 9-406 also includes the concept of "non-misunderstandable." A debtor must be able to reasonably understand the demand of payments from the account debtor, and the account debtor must understand that the account has been assigned and that payments on the account must be made to the person asserting the claim to payment.

Courts have ruled that demands sent to account debtors are insufficient unless certain facts are clearly noted. Notice must be given in a commercially reasonable manner, as dictated by the agreement between the parties; if no specific manner of notice was stated in the agreement, any notification will suffice if the account debtor or the purchaser have knowledge of it. Notices can be in writing or any form authorized by the agreement between the original creditor and the debtor. If in writing, notice must specify the obligation it relates to, to adequately allow the debtor to comply. And if the original agreement provides the debtor may be excused from obligations, an attempt to modify the original agreement would be invalid — the person demanding payment in such cases is unable to pursue the debtor.