Reconciliation is the clause in most merchant cash advance agreements that lets the merchant request a temporary reduction in daily payments when actual revenue falls below the level used to size the advance. The goal is to keep the daily ACH proportional to current cash flow — not crush a business that's already struggling.
Reconciliation is what separates a structured MCA from a disguised loan. It's also the most under-used clause in the entire industry. Most merchants never invoke it. Most don't know they can.
Why Reconciliation Exists
An MCA is the purchase of future receivables — meaning the funder buys a portion of revenue you haven't earned yet. The daily payment is sized based on a percentage of historical deposits (usually 10-15%). If actual deposits drop materially, the daily payment is now collecting more than the agreed percentage.
Reconciliation is the mechanism for resetting the math. Without it, the structure stops being a receivables purchase and starts looking like a fixed-payment loan, which has different legal and tax consequences.
How Reconciliation Works
The contract typically allows the merchant to request reconciliation when monthly revenue drops by some threshold (often 10-25%) below the average used to underwrite the advance. The process:
- Merchant requests reconciliation in writing, usually with bank statements showing the revenue drop.
- Funder reviews — usually within 5-10 business days.
- Daily payment is reduced proportionally for a defined period (often 30-60 days), then re-evaluated.
- The total payback stays the same. Reconciliation extends the term, not the cost.
Important: reconciliation extends the repayment timeline. A $50K advance at 1.30 factor that was supposed to pay back in 6 months might take 8 months after reconciliation. The total $65K payback doesn't change — just how long it takes.
When to Request Reconciliation
Common triggers:
- Seasonal revenue drop (winter for landscaping, summer for accounting/tax firms)
- Major customer loss
- Equipment breakdown causing service interruption
- Local market disruption (road construction, neighborhood event impact)
- General economic slowdown affecting your industry
Don't wait until you're facing NSF returns. The cleanest reconciliation request comes after the first month of revenue decline, before the daily ACH starts bouncing.
What Reconciliation Is NOT
- It's not a discount. Total payback stays fixed. Reconciliation just spreads it over more time.
- It's not automatic. The merchant has to request it. Funders won't proactively reduce payments based on bank statement monitoring.
- It's not unlimited. Most contracts allow 1-2 reconciliations per advance. Repeated requests usually trigger a different conversation.
- It's not a substitute for default workout. If revenue has collapsed and the advance can't be repaid at any payment level, reconciliation isn't the right tool — modification or settlement is.
Reconciliation Math — Worked Example
Original underwriting: $300K average monthly revenue, 12% holdback = $36K monthly payback target, $1,200/business-day ACH. $50K advance at 1.30 factor, 6-month term, $65K total payback.
Three months in: revenue drops to $200K/month. The $1,200 daily ACH now equals 18% of revenue, well above the 12% target.
Reconciliation adjustment: ACH reduced to $800/day for 60 days, then re-evaluated. Term extends from 6 to ~8 months. Total payback unchanged at $65K.
How to Request Reconciliation Successfully
- Reach out early. First missed-target month, not third.
- Send bank statements. Last 90 days. The funder's underwriting team needs proof of revenue change.
- Be specific about cause. "Lost largest client in March, replacement contract starts in May" beats "things are slow."
- Ask for a defined period. 30 or 60 days, not indefinite.
- Get the modification in writing. Email confirmation with new daily ACH amount and effective date.
Reconciliation at Westline
Our standard contract includes reconciliation language. Merchants can request once per advance with bank statement proof of revenue decline. Reviews take 3-5 business days. Daily ACH adjustments take effect on the next billing cycle. We document everything in writing — no verbal modifications, no surprises.
Sources & References
- Bank denial and small business credit access figures cited in this piece are derived from the Federal Reserve Small Business Credit Survey. Approval rates for small business credit applications at large banks have ranged from approximately 13%-31% across recent survey years, depending on bank category and reporting period.
- Small business finance landscape and lending program data: SBA Office of Advocacy.
- Merchant cash advance industry standards and disclosure practices: Small Business Finance Association (SBFA).
- Commercial financing disclosure regulations referenced (NY FAIR Act, CA SB 1235/666/362, VA, UT) are summarized from the published statutes; consult counsel for specific compliance application.