New Orleans MCA Debt Relief Lawyers: 5 Records That Shape the Strategy

When a merchant asks a lawyer to get them out of their mid-term Merchant Cash Advance, it is usually because the sales that are supposed to be getting larger as time passes are getting smaller. The money being taken from the merchant’s account remains the same. If you are a business owner with merchant cash advance withdrawals hitting your business bank account, the lawyer you hire will start in one place. They will start with five records:

• the signed agreement and any amendments,
• the company bank and processor statements,
• the withdrawal history,
• your written reconciliation request,
• and the funder’s written response.

The answers, the “what next” and the defenses, always start from there.

The Reconciliation Process

The agreement is the only thing both parties will agree on, that it is controlling and that they signed it. That agreement often contains a section that explains what the merchant needs to do when they disagree with how much the funder is withdrawing or the calculation of the amount. The agreement may say something like “If you think the ACH is not being calculated right, here’s how you ask us about it; and here’s what we will do with your request.” What matters is what that section of the agreement says.

You’ll recognize it by language like ”true-up,” or ”readjustment,” or ”reconciliation,” or ”look-back.” Look to see if the section tells you what “receipts” are, or if it leaves that to the funder. You want to know the amount of the purchase percentage. You want to know what the deadline is for asking for a review. It may also say whether the change in the ACH is automatic, or discretionary. The language of the clause will not tell you if you have a case, but it will tell you the process you have to follow before you will have one.

Having your records makes it easier to check the funder’s work. Your bank statements show the withdrawals, and the processor statements show the sales. The merchant cash advance is figured based on the purchase percentage of the sales during the review period. So the reconciliation process boils down to three things: how much was withdrawn; how much were sales in the lookback period; and what is the purchase percentage? Deposits are divided into two categories, sales and ”non-sale income.” Other types of deposits include loans or advances, transfers from other accounts, and refunds. Because other deposits are not sales, sales have to be identified separately. The contract may tell you what non-sale income is, or it may leave that to the funder.

The third record is the ACH history, and the only thing it does is show what the funder took and when they took it. It doesn’t explain what the sales were, and it doesn’t say why the purchase percentage was what it was.

Here is how that works in practice. The agreement says the purchase percentage is 15% of receipts. At the end of the review period, your bank statement shows that the total in sales was $40,000. Fifteen percent of $40,000 is $6,000. The ACH history shows that the funder took $368 on each withdrawal day. That is a total of 20 withdrawals, for a total of $7,360. That is $1,360 more than you think should have been withdrawn, and what needs to be investigated. It is the difference you use to ask for an explanation.

Write Out Your Request

How you make the request for clarification depends on what the agreement says about the adjustment process. u can do it by calling, but that is not reliable enough. So, write out your request, or have your lawyer draft it. You will need to reference which part of the agreement is the reconciliation process. In your letter, make sure it is clear what the review period was. Your letter should also show what your sales receipts were for the review period, and what amount should have been withdrawn during the review period based on your receipts. Attach your reconciliation, pointing out what receipts in the review period were not sales. If there are any special items in your calculations, make sure your explanation tells why. You also need to keep a record of the request being delivered. To be on the safe side, keep copies of your records and the emails. What the funder is obligated to do depends on the terms of the agreement. The important thing, for the time being, is that you send the request, and keep the record you did it.

The reconciliation process is not a free pass from the withdrawals, just a method to address whether the withdrawals are right. So, you will still have to deal with the withdrawal while the reconciliation request is pending. If a lawsuit is already pending, it will be more important to watch the time and respond to the lawsuit too.

The Funder’s Response

The record of the funder’s response tells you what, if anything, they did with your request, and what they say is the reason. The funder may ignore it, and say nothing. The funder may say “no, and here’s why.” The funder may change the amount it is taking, without explaining it. If the funder agrees to a lower amount, it may be for a limited time. If that happens, take notes about any dates discussed, and write down what the monthly changes will be. You might find that agreeing to a lower payment, even if temporary, means you might also need to pay an additional fee or expense. Finally, make sure the reconciliation does not include a release.

A refusal or “no” is just a refusal or a “no.” But, in the same way that an agreement is interpreted through the “four corners” of the document, a response has to be interpreted for what it says. The real question is whether the refusal has any legal significance. In the 2020 New York LG Funding case, the court examined whether a transaction was a loan or a merchant cash advance. What the judge did was look at the whole arrangement. One signpost for courts deciding whether a transaction was an advance or a loan is whether there was a reconciliation clause in the contract. In several cases, courts deciding whether an MCA was a disguised loan looked at whether the MCA had a finite term. A third was whether the agreement gave recourse if the merchant declared bankruptcy.

What the refusal does is identify a gap between what you are saying and what the funder is doing. A refusal does not end the dispute, but it is a signal to look at the full transaction to see what was really going on.

Your records and ACH history help the lawyer understand whether you have to work on a way to negotiate with the funder, or have to prepare for court.

Check the funder’s lien too: in Louisiana, a funder’s UCC-1 lien can be filed in any one of 64 different parishes. The UCC filing is made with the parish clerk of court, not the Louisiana Secretary of State. That filing is usually effective for five years. Any lawyer will be better prepared to give advice or take action with better records.