Five Responses When an MCA Funder Threatens to Contact Your Customers

The threat is the product.

When an MCA funder announces an intention to contact your customers, the announcement itself is the move. The funder is testing whether fear, without any filing, will produce a payment. Of the twelve customer contact threats we reviewed most recently, seven never matured into action. The threat sufficed. Owners paid out of reserves that payroll had first claim on, which is the outcome the letter was drafted to achieve.

Some funders do follow through. The quality of the first response, more than the volume of the fear, decides how the months that follow unfold.

Locate the Assignment of Receivables Clause

The tedious response comes first because it controls everything after it. Retrieve the agreement and find the assignment of receivables provision; that clause, where it exists, is the only mechanism that permits a funder to approach the people who pay you. Under UCC Section 9-406, a funder that has purchased future receivables may instruct your account debtors, the statute's term for your customers, to redirect payment. The notice must be authenticated, the assignment must be valid, and the clause must say what the funder claims it says.

Most of these agreements were signed at speed, in a borrowed conference room or at a kitchen table after close, and the drafting shows it. Language broad enough to imply a power of notification often rests on an assignment that would not survive a careful reading. An attorney who works with merchant cash advance paper can tell you in an afternoon whether the provision is enforceable or whether it is a costume.

Put Every Response in Writing

The instinct, when the threat arrives, is to pick up the phone and argue. Resist it. A written answer creates a record; a call creates a memory, and memories make poor witnesses. Collectors prefer you conversational, because conversation produces admissions that paper never would.

The letter you send back should accomplish three things: acknowledge receipt, request written proof of the assignment under Section 9-406 (proof the funder must furnish on demand), and state that you dispute any right to contact your customers absent valid documentation. None of this concedes the debt. You are requiring the funder to demonstrate the mechanism it claims to hold. If the proof never arrives, the threat was posture. When it does arrive, your attorney has a document to evaluate instead of a rumor.

Reach Your Key Accounts First

The third response is the uncomfortable one, and in our experience the wisest. Where contact has moved from threat to likelihood, a brief note to your key accounts does quiet work: a financing matter is being resolved, correspondence from a third party may arrive, operations continue as before. Owners fear the note reads as weakness. In practice the first version of events a customer hears is the version that holds, and it may as well be yours.