MCA Banking Records: 7 Habits That Improve Control of Payments and Disputes

If a merchant cash advance is pulling money out of your business checking account every day, the most useful thing you can do is surprisingly boring: record it. Each day, write down the payment the merchant cash advance took out and the outstanding balance. The hardest part of dealing with a merchant cash advance is handling the stress and uncertainty of seeing money get sucked out of your business account every day.

Dealing with merchant cash advance companies is rarely straightforward, but there are a few more things you can do to reduce the chances of getting tangled up in an ongoing battle: read bank statements fast, report debits that were taken without authorization quickly, track how much you’ve repaid, document your revenue for reconciliation, put stop-payment orders in writing, don’t block debits blindly, and keep good records and settlement paper. These habits give you back control by giving you the insight you need to make decisions.

An important part of solving merchant cash advance problems is asserting how much you’ve paid and how much you owe. If you track your payments, you have a record of what you’ve paid, and that gives you leverage to negotiate with a merchant cash advance company. Without accurate records, you’re at the mercy of the merchant cash advance company’s own internal records.

That matters because Regulation E, the federal rule for electronic transfers, only covers personal accounts, not business accounts. So the only thing standing between you and problems with your business account is your own paperwork.

Review Financial Statements

Keep an eye on all incoming statements, and review them as quickly as possible after receiving them. The more rapidly you can review financial statements, the less time that you’re in the dark about your finances, and the faster you can respond to problems. When a merchant cash advance takes money from your business checking account, all of that information should be posted in your bank statements. You’re not able to predict precisely when a payment is going to get taken out, so the best way to check if you were overpaying or underpaying is to track the amount that was withdrawn for each day and then compare that with what the agreement specified. If you notice anything that looks strange, ask your bank or financial institution to give you more information.

Under the Uniform Commercial Code, you are supposed to carefully review each bank statement you receive, and report any unauthorized transactions with reasonable promptness. If it’s the same wrongdoer more than once, then after up to 30 days without notice to the bank, you can’t object to later items by the same culprit that the bank paid in good faith. For an unauthorized signature or alteration, you only have one year after the bank sent you that statement to make your claim to the bank, or else you’re blocked forever. If you miss the window, the unauthorized debits can end up just getting stuck on you.

This is where tracking what you’ve paid pays off. If you’ve repaid the entire outstanding balance and the merchant cash advance company keeps debiting your account, you have the evidence you need. This has happened in real cases. One FTC court case against MCA provider RCG Advances involved allegations that the company kept debiting money from businesses’ accounts even after they had paid back what they owed. In one case, RCG allegedly debited more than $75,000 without permission.

Reconciliation Clauses

Merchant cash advance agreements often have reconciliation clauses that allow you to request a reduction in the daily repayment if your revenue has gone down. But merchant cash advance companies often won’t volunteer to use it unless you proactively bring it up. The request should be in writing and include bank or payment processing statements to show the drop in revenue. You should keep a copy of whatever they send back, or keep a copy of proof of no response if you get none. Courts have examined whether reconciliation rights were honored in cases where judges were trying to decide if an MCA deal was a true sale of receivables or a credit product. Even if they just ignore the reconciliation request, at least you now have a record that they ignored it. This isn’t a guaranteed defense, and it might vary by state or contract, but it’s worth asking even if they turn you down.

Writing matters for stop-payment orders too: a clear written communication is the most certain way to lock one in. Under the UCC, a written stop-payment order on a check only lasts six months. If you need to keep it in effect longer, send a written renewal request while the original order is still in effect. A stop-payment order that you make on the phone or in person expires after 14 days unless you confirm it in writing before that time is up.

But blocking the debits blindly may cause you to lose control of the situation without fixing the problem. Blocking the bank transfer or closing the account doesn’t end the payment obligation. Most MCA agreements treat not paying as a default and accelerate the full balance. If you don’t settle, the merchant cash advance provider can file a lawsuit, sometimes naming you personally as guarantor. After a judgment, they can move for bank levies or freezes, depending on what your state allows.

Having a Complete Record of Everything That Happened

If the fight with the merchant cash advance company escalates, having a complete record of everything that happened will become critical to your success. The IRS recommends that most business records relating to an income, a deduction, or a tax credit be kept three years. Bank statements, the merchant cash advance agreement, and any letters to your bank or the merchant cash advance company are also important evidence. The last thing you want to have to say to an MCA company, a bank, or a judge is “Yes, that’s what they said, but I don’t have that anymore.”

If the merchant cash advance company is willing to settle, get the settlement in writing first, in a way that ends the obligation to pay and leaves you free and clear. In writing, it’s more difficult for the MCA company to later say they never agreed. If you settle a merchant cash advance, the settlement agreement should say that the obligation is satisfied in full on performance. If you’re personally liable on the agreement, the settlement document should mention that you, by name, are also being released from any further obligation. UCC-1 filings should get terminated in a set number of days.

The leverage you have is highest at the beginning, and it drops every time something else happens. As the days go by, your choices get fewer and fewer, and you end up getting forced into the next step. Record keeping is what allows you to respond fast enough to keep all the options open. If you stay vigilant and organized, you can tame some of the most daunting financial problems that small business owners can face.