Glossary · Legal and compliance
Reconciliation
Reconciliation is a merchant's contractual right to have fixed MCA payments adjusted to match actual receipts when sales fall, a key feature of the true-sale structure.
Also called reconciliation clause, payment reconciliation, adjustment
Because an MCA is a purchase of a share of future receivables, the merchant should only owe that share of what actually comes in. A reconciliation clause lets the merchant ask the funder to compare the fixed payments with real receipts and adjust, typically on request with bank statements.
Courts have looked at whether reconciliation is real when deciding if an MCA is a sale or a disguised loan. A contract with no workable reconciliation, a fixed term and a payment guarantee is more likely to be treated as a loan, which brings usury and other lending laws into play.
How courts treat reconciliation varies by state and by contract. This is general information, not legal advice.
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Related
- GlossaryMerchant cash advance (MCA)A merchant cash advance is a funder buying part of a business's future receivables at a discount, repaid by a share of sales or fixed debits until the RTR is delivered.Read
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