Subcontractors: 6 Decisions When an MCA Funder Contacts the General Contractor

The general contractor's receipt of a payment demand does not settle who is entitled to the subcontract balance. Before anyone changes the payment destination, the subcontractor needs the notice, the financing documents, and the provisions governing the underlying project.

The immediate concern is operational as well as legal. A payment held during a dispute can affect payroll and completion costs, even where the funder's asserted rights have not been established.

1. Obtain the Exact Communication

Ask for the complete demand rather than a summary from the project manager. Retain attachments, account references, and the date the general contractor received the communication.

Identify whether the sender requests information, asserts an assignment, or directs payment to a different account. Those statements should not be treated as equivalent.

The subcontractor should also preserve its own communications with the MCA provider. A prior modification, payoff discussion, or dispute may be relevant to the demand now presented to the project payer.

Do not rely on a telephone assurance that the notice is routine. The document should be reviewed for the particular payment and account it identifies.

2. Read the Subcontract Beside the MCA Agreement

The subcontract establishes the payment relationship for the project. Review the invoicing requirements, approval conditions, and any provisions concerning assignment or payment disputes with counsel.

The financing agreement addresses a different relationship. Its description of purchased receipts, collateral, and asserted collection rights must be examined without assuming that it rewrites every term of the subcontract.

New York UCC Section 9-315 provides rules concerning continuing security interests and identifiable proceeds, subject to exceptions. The provision does not, by itself, answer every question about a general contractor's duty following a payment notice.

Counsel should identify the applicable notification and payment rules in the governing jurisdiction. A financing statement is part of that inquiry; it is not a substitute for the underlying agreement or a determination of the amount owed.

The project may also involve rights and obligations beyond the MCA documents. Identify retainage, disputed change orders, and amounts the general contractor says are subject to deductions.

The objective is to distinguish a payment that is due from a contract balance that remains contingent or disputed. An asserted claim against receivables does not make incomplete work complete.

3. Protect the Project Relationship Without Conceding the Claim

The general contractor may need an answer before processing the next payment application. Provide a response coordinated with counsel that identifies the dispute and the documents being reviewed.

Avoid unsupported instructions to ignore the notice. A demand can require legal attention even when the subcontractor believes the funder has overstated its rights.

An equally unexamined agreement to redirect everything may affect money beyond the identified obligation. The scope of any proposed direction should be explicit.

Keep the message focused on the project. Accusations about the funder's character add little to a question concerning the proper recipient of a payment and can distract from the relevant records.

The CFPB's collection law guidance states that the federal FDCPA does not cover business debt. Consumer restrictions should not be assumed to supply a complete answer about contact with the general contractor.

Other legal issues may still require assessment. Counsel should review the content and purpose of the communication without concluding that every third-party contact is prohibited or that every commercial demand is permissible.

If the payer withholds funds while seeking advice, document what it says and the amount involved. Do not convert uncertainty about the payment into an assumed legal obligation to hold it indefinitely.

A single payment application may include several categories of work. Preserve the approved portion separately from unresolved changes so the notice does not obscure what the project records actually support.

The subcontractor should continue to document performance and any agreed project changes. A financing dispute should not leave gaps in the evidence supporting the invoice itself.

4. Calculate the Payment Already Earned

Prepare a project ledger separating paid invoices, approved amounts awaiting payment, and disputed items. Attach the evidence supporting each category.

Include payments that may have been sent to the funder. A redirected transfer should not disappear from the subcontractor's accounting because it never reached the operating account.

The calculation should also distinguish the MCA claim from the total subcontract price. A demand against a particular balance requires reconciliation against receipts and credits associated with that obligation.

Review completion costs before making a settlement offer from the project proceeds. Money needed to finish the work should appear in the budget, with the assumptions stated.

If the general contractor asserts a deduction, preserve the explanation rather than reduce the ledger without a record. The final payment calculation may require agreement on more than one dispute.

5. Consider Delancey Street for Negotiation

Delancey Street offers an MCA review through its merchant cash advance settlement service. Its free, confidential initial review can be used to assess the financing obligation alongside the project cash flow.

The company is a debt settlement provider, not a law firm. Independently licensed counsel handles legal representation and should address contested payment instructions or a lawsuit.

Confirm how any proposed engagement handles existing notices to project payers. A negotiation should account for those communications instead of assuming that a lower monthly payment resolves them.

No provider can ensure an accepted settlement. The owner should review fees and the source of each proposed payment before agreeing to an arrangement.

6. Document the Instructions That Follow Settlement

The written agreement should identify what happens to the notice sent to the general contractor. If revised instructions are required, establish who will issue them and what they will state.

Reconcile payments received during the dispute before fixing the final amount. A project transfer and a scheduled installment should not be counted against the same balance without a clear ledger.

Ask counsel to review releases and any conditions affecting the subcontractor or guarantor. The general contractor's willingness to resume payment does not establish that every financing obligation has ended.

Simply retain the executed terms, the updated instruction, and confirmation of any redirected payment. Ensure that the accounting staff has the same version of the arrangement as the person negotiating it.

The project needs a reliable payment direction and the subcontractor needs an accurate account. Those are the results against which the resolution should be measured, after the argument about who called whom has subsided.