The steps below are listed in chronological order, because certain actions like revoking ACHs or telling your bank not to pull funds may actually cause an Event of Default under the Agreement. If you are still unsure whether you are falling into default, read about the warning signs of MCA default.
What should you do before missing an MCA payment?
- Request reconciliation in writing, and provide proof of receipts;
- Pull all relevant documents from the file;
- Ring fence operating cash to the extent permitted;
- Consult with an MCA lawyer before revoking ACHs or signing anything; and
- Do not take any new advances to cover payments.
Why should I request reconciliation before defaulting on my MCA?
New York appellate courts have only recently begun requiring merchants to use reconciliation procedures, so use yours before you file any claims. In September 2025, the Second Department ruled in favor of a funder because the merchant “did not engage in the agreement’s reconciliation procedure” and therefore its claim that the procedure was “illusory” could not be reviewed. Apollo Funding Co. v. Dave Reilly Construction. Also, reconciliation is one of the three factors a court will consider in determining whether the Advance is a loan. See LG Funding v. United Senior Properties.
Send a written request to the funder by email and certified mail that cites the section number of the reconciliation provision, and attach copies of your bank statements for the period. For example, if the percentage of receipts is 15%, and you made $40,000 this month but the fixed payment was calculated based on $60,000 in receipts (at $9,000/month), you are overpaying by $3,000/month. You can often determine what income the funder used in estimating the term of your Advance by consulting the state disclosure form, as New York requires.
Which documents should you pull, and what are you looking for?
You should pull a copy of the Advance Agreement, any personal guaranty, confession of judgment affidavit, state disclosure form, and UCC-1 statements filed by the funder, plus 90 days of bank statements and payment processor statements. Review the Agreement for the reconciliation provision, Events of Default, acceleration, anti-stacking provisions, banking/processor change covenants, and governing law/venue.
Run a UCC search on your Secretary of State’s index to see which funders have filed and in what order. Finally, create a spreadsheet with the date, amount, and originator of every debit from your account over the last 90 days. Note how much of your daily net deposits go to the Advance: if the Advance is debiting $1,200/day and your net deposits are $900, you are losing $300/day or $6,000 over 20 business days.
Can I transfer money to a different bank account before defaulting on my MCA?
Probably not. Most Advance Agreements provide that a “bounced” debit, closing the account, or transferring to a different processor will constitute an Event of Default and permit the funder to accelerate the remaining balance. Even if your agreement does not contain this provision, DCL §273 permits a creditor to unwind any transfer made by a debtor “with actual intent to hinder, delay or defraud any creditor of the debtor.” However, you should make a budget for your payroll, tax, and rent obligations to the extent permitted under your Agreement.
Under Section 9-312(b)(1) of the Uniform Commercial Code (UCC), a security interest in a deposit account can only be perfected by obtaining control. So a UCC-1 filing alone can’t perfect a security interest in your deposit account. As of September 1, 2025, a funding provider in Texas can’t set up automatic debits to your account unless it perfects a first-priority security interest in that deposit account under Section 398.056 of the Texas Finance Code (except for certain split-pay transactions through your processor or those that you initiate).
When should you talk to an MCA lawyer?
Speak with an MCA lawyer before revoking your ACH authorization and before signing any modification offers. Modification agreements can include an agreed judgment or a waiver of your reconciliation rights. Also ask whether your state even permits a confession of judgment. As of August 30, 2019, confessions of judgment in New York must state the county in which you reside pursuant to Section 3218 of the New York Civil Practice Law and Rules (CPLR). In Pennsylvania, Rule 2959 gives you one petition to strike or open, filed within 30 days after service. If you’re considering a modification, forbearance, or settlement, read What are my Options Before I Default on My MCA?
Should you take another advance to cover this week's payment?
Probably not. Most MCA agreements include an anti-stacking covenant, which means that you’ll default on your original MCA the minute you take another advance. Your funder may even be monitoring for new UCC filings or changes to your deposit account post-funding, so it’s likely to find out soon. Plus, the new advance (sometimes called a “reverse consolidation”) adds another daily payment on top of the one you already can’t cover. If you want a discount on your balance but haven’t missed a payment yet, read Can I Settle My MCA Before I Miss a Payment?
Frequently Asked Questions
Does asking for reconciliation count as a default?
As a general rule, you shouldn’t default by exercising your right to reconciliation because that right is contained in your MCA agreement. Still, read your Events of Default carefully, and keep making whatever payments you can.
Can I tell my bank to stop the MCA withdrawal?
You can only tell your bank to stop the withdrawal if the withdrawal is unauthorized. While banks will return unauthorized debits to business accounts under Reason Code 29 (R29) within two banking days, an authorized debit does not become unauthorized merely because you cannot afford to pay it. Telling your bank to return an authorized debit via R29 is a misrepresentation to the bank and will likely trigger a default. You should always consult with counsel before speaking with your bank.
Is my confession of judgment even enforceable?
It depends on where you’re located. As of August 30, 2019, a confession of judgment cannot be filed in New York against a non-New York resident. As of September 1, 2025, any contract for sales-based financing that includes a confession of judgment is void in Texas. Pennsylvania permits confessions of judgment in commercial transactions, but you only get one petition to strike or open it, filed within 30 days after service.
Does my state's disclosure law help me?
As of March 2026, ten states have passed disclosure laws for commercial financing transactions, including New York, California, Texas, Florida, and Virginia. New York’s form states the income your funder used to estimate your term, a number you can use when requesting a reconciliation.