Understanding the Reconciliation Clause in Your MCA Contract

The clause says your payments adjust with your revenue. The payments have never adjusted. The clause is the most important provision in your contract and the most consistently ignored by the company that wrote it.

The reconciliation clause is the provision in your MCA agreement that states: if your business revenue decreases, you can request a reconciliation of your daily or weekly payment amount to reflect the reduced revenue. The payment should be recalculated as the originally agreed-upon percentage of your actual receivables. If the funder purchased 15% of your future receivables, and your receivables declined by half, your payment should decline by half. That is what reconciliation means. That is what the clause promises.

In a true purchase of future receivables, reconciliation is not a discretionary benefit the funder grants or withholds. It is the mechanism that makes the transaction a purchase rather than a loan. If the funder purchased a percentage of your receivables, the amount the funder collects must be a percentage of your receivables. If the funder collects a fixed amount regardless of your revenue, the funder is not collecting a percentage of anything. The funder is collecting a fixed repayment on an advance. That is a loan.

How Funders Avoid Reconciliation

The methods vary in their sophistication, but the result is consistent: the payment does not change.

Some funders deny reconciliation requests outright. They cite contractual conditions that were never discussed at the time of signing — minimum processing volume requirements, restrictions on other financing, compliance with operational covenants buried in the agreement’s fine print. The conditions function as gatekeepers that ensure the gate is never opened.

Some funders require extensive documentation before they will process a reconciliation request. Months of bank statements. Tax returns. Profit-and-loss statements. Proof of the revenue decline. Proof that the decline is not due to the business owner’s voluntary actions. The documentation requirements are onerous, the processing time is indefinite, and the daily withdrawals continue at the original amount throughout. The business is drowning, and the funder requires a notarized hydrographic survey before considering a life preserver.

Some funders impose conditions that make reconciliation practically impossible. The business must maintain a specific processing volume — but the processing volume is the metric that declined. The business must refrain from taking any other financing — but the business took other financing because the MCA was consuming its cash flow. The conditions are circular. Compliance is impossible by design.

Some funders do not respond to reconciliation requests at all. The request is submitted. The acknowledgment never comes. The daily withdrawals continue. The business owner assumes the request was denied. It was never processed.

Why It Matters Legally

The funder’s treatment of the reconciliation clause is central to the legal characterization of the MCA. If the funder refuses to reconcile — if the payment amount is fixed regardless of revenue — the transaction has the defining characteristic of a loan, not a purchase. The funder advanced a sum of money. The business repays a fixed amount. The difference between the advance and the repayment is interest. The interest rate, when calculated, exceeds the usury cap. The agreement is void.

Courts examining whether an MCA is a loan or a purchase give significant weight to whether the reconciliation mechanism functions in practice, not just whether it exists on paper. A reconciliation clause that the funder systematically ignores is not evidence that the transaction is a purchase. It is evidence that the funder included the clause to maintain the legal fiction of a purchase while operating the transaction as a loan.

The clause was the funder’s own creation. The funder drafted it. The funder included it in the agreement. The funder’s failure to honor its own clause is the strongest evidence that the clause was never intended to function.

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What to Do

If your revenue has decreased and your MCA payments have not, submit a written reconciliation request. Send it by email and by certified mail, return receipt requested. The request should identify the agreement, state the original revenue figures, state the current revenue figures, calculate the adjusted payment amount based on the contractual percentage, and request that the daily withdrawal be adjusted effective immediately.

Keep a copy of everything. Note the date. If the funder denies the request, obtain the denial in writing. If the funder delays, document the delay. If the funder ignores the request, the silence is itself documentation. Every response — or non-response — is evidence.

An attorney can submit the reconciliation request on your behalf with the legal authority and documentation necessary to compel a response, and can use the funder’s treatment of the reconciliation clause as a basis for challenging the agreement, reducing the obligation, or arguing that the transaction is a loan subject to usury laws. The reconciliation clause is the funder’s vulnerability. The funder either honors it — reducing your payment — or refuses it — proving the transaction is a loan. Either outcome benefits you.