Probably not. Except in specific circumstances, most business owners are better off reducing the payment, by requesting reconciliation in writing, before ceasing payments.
The Internet is littered with advice that you can only settle a Merchant Cash Advance (MCA) after stopping payments. One New York law firm states that starting before full default “generally produces faster, cheaper outcomes,” and, in the same article, that “the first tactical move is to stop MCA withdrawals before negotiating.” Another law firm takes the opposite position, that stopping payments is a “catastrophic strategic error.”
Do I have to be in default to get a discount on my MCA?
No. Some MCA factors offer discounts for non-defaulted MCAs, such as Credibly, which offers what it terms an “Early Remittance Discount.” In New York, under regulation 23 NYCRR 600.6, the factor must disclose the terms of prepayment at the time of signing, and similar disclosure rules exist in California, Connecticut, Florida, Georgia, Kansas, Missouri, Texas, Utah, and Virginia. Pennsylvania has no such statute, but if your factor is in one of those states, check the disclosure form you signed for any pay-off discount.
What do I lose by stopping my MCA payments before settlement?
It may eliminate your best legal argument. New York appellate courts will not entertain an argument that the reconciliation provision is illusory if the borrower never tried to use it. In Apollo Funding Co. v Dave Reilly Construction, LLC, 2025 NY Slip Op 05055 (2d Dept. 2025), a borrower who paid $14,240.00 of a $37,750.00 purchased amount lost on summary judgment for that reason. The same rule was applied in Diesel Funding v Build Retail, 2026 NY Slip Op 02629 (2d Dept. 2026). In People v Richmond Capital Group, 2026 NY Slip Op 00990 (1st Dept. 2026), evidence that the factor refused requests for reconciliation helped support a finding of usury liability. In the author’s opinion, an owner who stops without requesting reconciliation gives up a strong argument for recharacterizing the MCA as a loan, and with it the factor’s litigation risk.
It may trigger default provisions in your MCA Agreement. In NewCo Capital Group v SPE Trading, 2026 NY Slip Op 04057 (4th Dept. 2026), failing to request reconciliation within one (1) business day of a debit returned for insufficient funds was a default, and judgment against the business and the guarantor was affirmed over a single return. Another MCA Agreement filed with the SEC makes it a default if the business stops a debit “without providing any advance written notice.” In Spin Capital Funding v Bridgelink Communications, 2026 NY Slip Op 02296 (2d Dept. 2026), a judgment of $8,234,160.50 was affirmed after debits were rejected for insufficient funds and account closure.
Settlement papers may let the factor take judgment against you without further notice. In Diesel Funding, supra, the settlement let the factor take judgment without notice for the settlement amount plus 20% of the remaining balance, which came to $1,476,330.68. See generally, What happens if I stop paying my Merchant Cash Advance?
How can you lower payments without stopping them?
The best way to reduce your MCA payments is to request reconciliation in writing, which ties your payment to the percentage of receipts in your reconciliation clause. It will not reduce what you owe, but may reduce the payment if your sales have decreased. See generally, 5 Letters to Send Before Stopping Your Merchant Cash Advance Payments. If the factor asks you to sign a modification or hardship addendum, treat it as a new contract and vet all its terms. Diesel enforced the stipulation “according to its terms,” so look for a Confession of Judgment, new Guaranty, or any waiver of your rights to reconciliation.
When does stopping first make sense?
It’s rational to stop first when you cannot pay or there is no point in paying. This checklist shows which side you fall on.
| Question to answer | Leans toward paying while negotiating | Leans toward a controlled stop |
|---|
| Did you ask for reconciliation in writing? | No | Yes, and they said no |
| Can you pay the reduced debit and still cover payroll and taxes? | Yes | No, you will default anyway |
| Does your contract have a one-business-day or advance-notice clock? | Yes, it will be triggered if I stop paying | No, I can give them advance written notice |
| Did you sign a Confession of Judgment and live in a state that allows them? | Yes | No, or my state doesn’t allow them |
| Does your personal guaranty cover payment broadly? | Yes | Its scope is narrow |
| Have they already sued you? | No | Yes |
If you answered on the right, stop paying in a controlled fashion with advance written notice, without cancelling accounts or moving your receivables. Read how to revoke your ACH authorization for your MCA.
Is there a difference if you’re in Pennsylvania, New York, or Texas?
Yes. In Pennsylvania, the biggest issue is whether you signed a confession of judgment, which in commercial cases can still be entered without first suing you, and you only have 30 days from the date it was served on you to file a Petition to Strike or Open the judgment. See Pa.R.C.P. 2959. In New York, a confession of judgment can only be filed in the county you stated you live in, so it can’t really be used against people outside New York. See CPLR 3218. Texas law effective September 1, 2025, makes confession of judgment provisions “void and unenforceable” in commercial sales-based financing agreements and puts restrictions on automatic debits. See Texas Finance Code 398.055.
Frequently Asked Questions
My settlement company told me to stop paying. Isn’t that normal?
Yes. Stopping payment is the cornerstone of most settlement programs, but they are incentivized to get you to stop. One law firm’s fee example shows $15,000 to enroll, then $1,000 per month for twelve months, and then 35% of the savings, which adds up to $101,000 on a $100,000 debt. And Coastal Debt’s own disclaimer says it saves 57% of the debt before program fees, but only 27% after them.
Should I keep paying the full amount while negotiating?
You can pay the reconciled or modified amount you have requested in writing. If they agree to stop debiting your account while you negotiate, get it in writing.
Should I stop paying all my MCAs?
This is strategy more than law. Some people keep paying the first position and negotiate with junior positions, which have less to collect and may take a bigger discount. It depends on your priority and agreements.
Will I have to pay taxes on my MCAs if I settle them?
Maybe. There are exclusions under 26 U.S.C. 108 for forgiven debt, but it’s unclear if they apply to MCAs. Ask your CPA before you settle.