If you haven't defaulted on a merchant cash advance, you can always try to settle it. But the funder has little incentive to offer a settlement on a current account, since you're paying them what they want, when they want. If your agreement contains an early payoff discount, that might be your best option.
Will an MCA funder give you a discount while you're still current?
Generally speaking, a meaningful discount won't be offered if you're still current, because the cost of the MCA is set at the outset, as a purchased amount equal to the advance multiplied by the factor rate, and so a funder doesn't get any benefit from holding the debt over time. As Credibly puts it, the cost is "established at approval using a factor rate and does not compound over time."
Websites in this industry disagree. CredibleLaw describes pre-default settlement as "faster, cheaper" and reports settlements of 40 to 55% of the remaining balance. Delancey Street says that settlement leverage before default is "minimal" and that "the discount window is widest in default." Neither firm provides data.
Why would a funder offer a discount after default but not before?
After default, a funder may settle because the cost of collecting can be substantial: funders risk litigation, and the merchant may argue that the advance is a loan. Bankruptcy will trigger an automatic stay under 11 U.S.C. § 362(a). As CredibleLaw explains, "Funders prefer a certain recovery at a discount over uncertain litigation outcomes."
This makes it tempting to default intentionally. Be careful: once you default, the entire outstanding amount (including fees) will likely become due. One bounced payment may be enough. In a June 2026 case from the Fourth Department, the contract made it a default to fail to request reconciliation "within one business day" after a debit was returned for insufficient funds. Colonna Cohen, which defends merchants, calls stopping payments to negotiate a settlement "a catastrophic strategic error."
Does my MCA have an early payoff discount?
Some MCA contracts do. Credibly's "Early Remittance Discount" says that when you pay your full outstanding balance in one lump sum, Credibly "can reduce the factor (cost) component of your Amount Sold by 20%," and "Eligibility requires no Events of Default and a timely remittance history."
Defaulting to chase a better deal would make no sense if default would make you ineligible for the discount. To find your own terms, start with your disclosure form, if you have one. New York regulations at 23 NYCRR § 600.6(j) require the form to state either that "you still must pay all or a portion of the finance charge" if you pay early, or that you "will not be required to pay any portion of the finance charge other than unpaid interest accrued." Similar provisions are required in Florida, Georgia, Utah, Missouri, Virginia, Connecticut, and Texas. Pennsylvania has no commercial financing disclosure law, so read the contract's prepayment or early remittance section.
How much does an early payoff discount actually save?
Early payoff discounts tend to be in the single digits as a percentage of the amount owed. In our illustration, suppose a hypothetical advance of $100,000 with a factor rate of 1.30, and the unpaid balance is $70,000 of the $130,000 purchased amount.
| Method for calculating the 20% discount | Discount amount | Payoff amount | Total discount from $70,000 owed |
|---|
| 20% of the full factor component ($30,000) | $6,000 | $64,000 | About 8.6% |
| 20% of the unpaid factor component (about $16,154) | About $3,231 | About $66,769 | About 4.6% |
Credibly did not disclose which method it uses. Get a payoff letter in writing with the exact amount. Paying off your MCA earlier (even at a discount) will increase the APR on your advance because you are paying the same fixed fee over a shorter time. If your funder offers a larger renewal for paying off early, New York's disclosure form must tell you whether the renewal pays off unpaid finance charges from your prior advance (double dipping). A related post discusses how much MCA relief costs before default and whether it's worth it.
When can you settle an MCA before default at a real discount?
A negotiated discount is possible if the funder has a documented reason to believe that it will not be paid in full. Bank statements showing a revenue decline, stacked positions, a lump sum of cash (from an asset sale or other capital infusion), or the option to file for bankruptcy (including Subchapter V for qualifying businesses with debts up to $3,424,000 in cases filed since June 21, 2024) all change the picture.
Also formally request a reconciliation of your account. In Apollo Funding Co. v. Dave Reilly Construction (2d Dept 2025), summary judgment went to the funder where the merchant had paid $14,240 toward a $37,750 purchased amount, in part because the merchant had not used the reconciliation procedure (so the court did not consider whether that procedure was illusory). Requesting one prior to default (and documenting any refusal) may help a later discount request. For the pros and cons of reconciliation, forbearance, or modification, see your options before you default on an MCA.
Frequently Asked Questions
What should I include in a payoff or settlement letter prior to default?
Your payoff letter should state the amount that you will pay and a "good through" date. It should also include the funder's agreement to: (1) file a UCC-3 to terminate its security interest, (2) stop ACH debits, (3) dismiss any lawsuit, and (4) release any guaranty. Watch for new terms in modification or settlement documents, such as a new confession of judgment, new personal guaranty, or waiver of your rights to request a reconciliation.
Do I have to stop making MCA payments to work with a settlement company?
Most settlement companies will ask you to stop paying. Colonna Cohen describes advising the merchant to stop making payments as "the cornerstone of most settlement programs." Coastal Debt's own disclosure reports savings of 57% before program fees (27% including program fees) over a period of 6 to 18 months.
Is a discounted payoff or settlement of my MCA taxable?
Debt forgiveness is generally taxable unless you qualify for an exception, such as bankruptcy or insolvency pursuant to 26 U.S.C. § 108 (and the insolvency exclusion is limited to the amount of your insolvency). It is unclear whether a discounted MCA payoff under the contract qualifies for any exception. Consult with your CPA prior to settling your MCA.
How long do I have to petition to open a confessed judgment in Pennsylvania?
In Pennsylvania, you typically have 30 days from service of the notice of confessed judgment to file a petition to strike or open the judgment pursuant to Pa.R.C.P. 2959, and you must include all grounds for relief in the same petition.