Can't Make Your MCA Payments? Here's What to Do

What counts as a default is defined by your specific MCA contract, not by a single legal standard — common triggers include missing or blocking the agreed payments, interfering with the funder's authorized ACH access, closing or changing the debited account, breaching covenants, or making a material misrepresentation in the application. In a properly structured MCA the funder buys your future receivables and is supposed to share the risk of an ordinary, good-faith decline in revenue, which is why these contracts include a reconciliation provision. But that protection is not automatic: in most agreements you must trigger it with a written request and supporting bank statements, and if you simply stop paying or let a fixed debit bounce, that returned payment is itself an event of default even if a genuine slowdown caused it. Some contracts go further and make a revenue drop or 'material adverse change' an express default on its own, so read your Events of Default section carefully.

Many MCA agreements contain a reconciliation provision that lets the merchant request an adjustment of the daily or weekly debits to better reflect actual receipts when revenue falls. How meaningful that right is depends on the contract's wording — some make reconciliation mandatory once the merchant submits the required documentation, while others leave it to the funder's discretion or make the process so burdensome that courts have called it 'illusory.' Two things every struggling owner should understand: reconciliation only adjusts the size or timing of your payments — it does not reduce the total amount you owe — and it generally has to be requested while you are still current, because a single missed or returned debit can let the funder declare default and accelerate the balance. Even so, a genuine, usable reconciliation provision is one of the main factors courts (principally in New York, whose law governs most MCA agreements) look at — alongside the length of the term and whether the funder keeps recourse if the merchant goes bankrupt — when deciding whether an advance is a true purchase of receivables or a disguised, potentially usurious loan.

Most MCA contracts say that, on a defined event of default, the funder may demand the entire unpaid balance (the remaining 'purchased amount') at once and pursue collection — which can include filing suit (often against a personal guarantor), entering a confession of judgment if one was signed, or relying on its UCC security interest and ACH authorization to collect from receivables. Two things matter here. First, in a properly structured MCA a good-faith revenue decline is generally not itself a default — the acts that typically trigger one are blocking or closing the account, missing or returned debits, breaching the contract's representations, or bankruptcy. Second, even where a default is triggered, this acceleration remedy is not always enforceable: courts increasingly recharacterize MCAs that lack a genuine reconciliation provision or shift no real risk to the funder as disguised, usurious loans, in which case the acceleration clause — and sometimes the whole contract — can be void. An uncured default can still escalate quickly (a confession of judgment can become an entered judgment within a day or two where one was signed and the debtor is in-state), so whether the funder can actually collect the full balance depends on both whether a real default occurred and whether the agreement is enforceable as written.

Blocking the ACH debits or closing the account is risky, because many MCA agreements define revoking authorization or closing the account as an event of default. Doing so does not reduce or extinguish the underlying debt — it typically accelerates the full balance — and it is a common trigger for a lawsuit, or, where the contract contains an enforceable confession-of-judgment clause, a confession of judgment. (New York's CPLR 3218, as amended in 2019, now bars confessions of judgment against merchants who are not New York residents, so they reach far fewer out-of-state owners than they once did.) If your revenue has dropped, requesting reconciliation in writing while you are still current is generally safer than unilaterally stopping payment.