A merchant cash advance (MCA) or arrangement involving receivables—money customers owe the business—can look simple because it quotes a single factor or daily remittance (payment or deduction to the funder). Read the full cash flow and what happens when sales fall.
Convert the headline into dollars and dates
Hypothetical offer: stated funding $20,000; $1,000 withheld at disbursement; purchased or repayable amount $28,000; $200 remitted on each scheduled collection day.
Cash received: $19,000. Difference between remittances and cash received: $9,000. Number of $200 remittances to reach $28,000: 140.
This arithmetic does not establish an APR, actual duration, or legal finance charge. Calendar duration depends on payment days, changing remittances, interruptions, and other terms. A “1.4 factor” is not a 40% annual rate.
Ask for the broker's compensation and every fee, whether withheld, separately charged, or embedded. Compare offers using net proceeds, projected total remittances, dates, prepayment treatment, collateral, and guarantees.
Read what reconciliation actually allows
Reconciliation or a true-up is a process intended to adjust collections to the contract's sales or receipts measure. Its practical value depends on the exact language and operation.
- Identify the receipts covered: all revenue, a processor stream, or specified receivables.
- Find the remittance percentage and how an estimated fixed amount was set.
- Locate who must request an adjustment, the documents required, timing, and any limits.
- Determine whether the adjustment changes future debits, refunds excess collections, or both.
- Keep the request, sales evidence, response, and actual revised withdrawals together.
A clause titled “reconciliation” does not prove the transaction is a genuine receivables sale, and a fixed debit alone does not settle the legal classification. Obtain transaction-specific advice where enforceability or default turns on that issue.
Use required disclosures where the transaction is covered
As one state example, New York Financial Services Law section 803 requires specified sales-based financing disclosures, including disbursement, finance charge, estimated APR, and projection-based information for covered offers.
Estimated payment and duration information should be read with the projection method and assumptions. It does not guarantee actual sales or repayment speed. Disclosure coverage does not establish that charges are lawful, the provider is licensed, or the arrangement is legally a loan rather than a sale. Other jurisdictions have different requirements.
Map all remittances before accepting another advance
Put every lender, funder, processor deduction, and bank debit on the same daily or weekly forecast. “Stacking” means overlapping funding arrangements; it can also raise contract-default and priority issues. New proceeds that immediately retire earlier funding may leave much less operating cash than the headline suggests.
Review guarantees, security, bank-access provisions, default triggers, forum, and any claimed enforcement shortcut. If cash is short, make any adjustment or workout request using the contract and actual sales records. Obtain written terms for a changed debit or settlement and confirm the treatment of the remaining purchased amount, liens, and guarantors.
Do not rely on a broker's general promise that payments always fall with sales. The agreement, available process, and actual handling must support that expectation.
Sources and further reading
General educational information. The original evidence, dates and recorded qualifications are available in the optional archive below.