The Notice Is Sometimes Lawful. The Threat Never Is.

A merchant cash advance can sometimes contact the owner's customers and vendors, and the lawful version of it has a name: the notice of assignment. Because the contract is written as a purchase of future receivables rather than a loan, the funder takes the position that it now owns those receivables, and an owner of a receivable may tell the account debtor, the customer who owes the money, to pay the new owner. Sent in good faith on a genuine assignment, that notice is collection of a thing the funder bought, not harassment.

That is the narrow, lawful channel. Most owners do not encounter the narrow version. They encounter the call that arrives the week after a missed payment, made not to redirect a payment but to apply pressure through the people whose opinion the owner cannot afford to lose.

The FTC Has Already Named The Other Kind

The Federal Trade Commission did not theorize about this conduct. It documented it. In its actions against RCG Advances and RAM Capital Funding, both since permanently banned from the merchant cash advance industry, the filings described collectors threatening owners, one threat being to break a man's jaw, and the kind of pressure that does not stop at the owner's door. The recharacterization point matters here too: if the purchase was a loan in substance, the funder never owned the receivables, and a notice of assignment built on an ownership it does not have is a misrepresentation dressed as a legal right. A collector telling a customer the owner has done something criminal, or that the customer is now personally on the hook, or simply that the owner is a deadbeat, is not collecting an account. It is using a third party as a weapon.

Consider a wholesaler who supplies three restaurants and depends on every reorder. A funder that telephones those three buyers to announce the wholesaler cannot pay his debts has not collected a dollar of receivable. It has detonated the reorders. The damage is to the relationship, which is the only asset the wholesaler has that a frozen account cannot touch, and that is exactly why the call gets made.

An owner forwarded me a voicemail a collector had left for his largest client. It did not mention an assignment or a receivable. It said the owner was running a scam and the client should distance itself. There was no assignment. There was a missed payment and a man willing to burn a business to collect on it.

What Is Permitted, What Is Not, And The Recourse

The line is not difficult to see once it is drawn. Permitted: a good-faith notice of assignment, on receivables actually purchased, telling an account debtor where to send the payment it already owes. Not permitted: threats, false statements that the owner is a criminal or a fraud, claims that a customer or vendor owes a debt it does not, contact whose purpose is reputational injury rather than collection. The first is property law. The second is the conduct two funders lost their entire industry over.

I have written before that the funder's worst behavior is also its weakest position, and this is the clearest case of it. Improper contact with customers and vendors creates exposure for the funder, gives the owner real standing in the negotiation, and can support claims in its own right, depending on the state and the words used. The notice that is lawful is narrow. The conduct that is not is documented, named, and actionable. Keep the voicemails.

Your customer calls you. Confused. Someone phoned them about money, your money, and now they want to know if the business is okay, if they're okay, if the invoice they paid last week is going to be a problem.

That call is the worst part of the whole thing. Worse than the funder's emails. Worse than the daily debit hitting your account at 6 a.m. Because now it isn't just your problem anymore. It's loose in the world, walking around inside your customer relationships, and you didn't put it there.

So can they do that? Short answer: sometimes, against some people, in some ways. The long answer is the one that actually helps you, and it turns on a distinction almost nobody makes: the difference between a customer and a vendor. Get that wrong and you'll either panic over something legal or shrug off something you could fight.

Customers And Vendors Are Not The Same Target

A customer owes you money. A vendor you owe, or buy from. Two completely different legal worlds, and a merchant cash advance funder treats them differently because the law forces them to.

Your customer who hasn't paid an invoice yet is sitting on what the law calls an account receivable. That receivable is an asset. And most MCA agreements (read yours) are written so the funder has a claim on exactly that asset. They call it a purchase of future receivables. They file a UCC-1 to perfect it. And buried in the contract is language about notification of assignment.

Here's what that machinery does. Under the Uniform Commercial Code, a secured party with a perfected interest in your accounts can send your account debtors, your unpaid customers, a notice telling them to pay the funder directly instead of you. Once that customer gets a proper notice, paying you no longer counts. They have to pay the funder, or they pay twice. That's not harassment. That's UCC Article 9 working as designed.

So the call to your customer might be legal.

Now the vendor. A vendor doesn't owe you a receivable. There is no asset there for the funder to claim, nothing to redirect, no notice of assignment that makes any sense. When a funder calls your supplier, your landlord, the company that prints your menus, they're not collecting anything. They can't be. There's nothing to collect from a person you owe money to.

So why call them at all?

To make your life small. To get back to you through someone you can't afford to lose. A vendor who hears your debt collector on the phone starts wondering whether to keep extending you terms, and the funder knows it, and that's the entire point. Pressure routed through a relationship.

That's a different fight, and a better one for you, because it's much harder for them to justify.

The Protection You Think You Have, You Don't

Everybody half-remembers the rules. Collectors can't call your work. Can't tell other people about your debt. Can't call at dinner. You've heard it your whole life.

That's the Fair Debt Collection Practices Act. It is a real law with real teeth, and it does not apply to you.

The FDCPA covers consumer debt, money borrowed for personal, family, or household reasons. A merchant cash advance is business debt. Commercial. The second you signed it as a company obligation, you stepped outside the statute that does most of the work people imagine is protecting them. No third-party disclosure rules. No prohibition on calling people who aren't you. The wall everyone assumes is there was built for someone else's house.

Read that twice if you're a business owner. The protections are not for you.

What's left is a patchwork. State commercial collection laws, which vary and are mostly thinner than the federal consumer rules. And common-law claims, the ones you bring yourself, with a lawyer, after the fact. The most useful of those is tortious interference: if a funder knowingly disrupts your contracts or your business relationships to squeeze you, and does it improperly, you may have a claim. Telling a customer the truth about a debt isn't automatically interference. Calling your vendors to spook them out of doing business with you starts to look like it.

The line is whether the contact was legitimate collection or just damage. Vendor calls land closer to damage. That's not a coincidence.

Before Judgment Versus After

There's a moment that changes everything, and most people don't see it coming until it's behind them. The judgment.

Before a funder has a court judgment against you, their reach into your customers runs through that UCC notice mechanic and not much else. Your vendors, even less. They can pressure. They can imply. They can send a sternly worded letter on a letterhead designed to look like a court document. What they mostly cannot do is reach into a third party's pocket.

After a judgment (and with merchant cash advances, that has often arrived through a confession of judgment signed at funding, before any dispute existed), the toolbox changes. Information subpoenas. Restraining notices to banks. Levies. In many states a judgment creditor can restrain or seize receivables directly and serve the third parties holding them. (New York tightened the COJ route in 2019 for debtors located outside the state, which mattered enormously, but the broader point holds: a judgment is the difference between pressure and power.)

So when you read your agreement, find the confession of judgment clause first. That single page tells you which world you're living in.

What The Customer Call Is Actually Telling You

Pull the contract. Find four things: the security interest language, whether it's framed as a purchase of receivables, the UCC-1 authorization, and any lockbox arrangement that routes your money through an account the funder watches. Then look up your own UCC filings on your Secretary of State's site and see who actually filed against you, and whether they did it right. A lot of these filings are sloppy. A lot of these "purchases" are loans wearing a costume. And if a court recharacterizes the deal as a loan, the funder's whole I-own-your-receivables theory weakens, and the letter they sent your customer was standing on less than it claimed.

Document every contact. Date, name, what was said, who heard it. That record is your evidence and your leverage, both.

And then understand what you're looking at. The funder went around you, to your customer, because going at you directly wasn't getting them where they wanted fast enough. The most aggressive move on the board, reaching past you to the people who keep you in business, is very often the move a funder makes when their direct position is weaker than they want you to believe. It reads as strength. It's frequently the opposite.

The call scared your customer. Fine. It was never really about your customer.

It was about you. It always was.