What Is a Reconciliation Clause and How Do I Use Mine?

Buried in most merchant cash advance contracts is a provision that can lower your daily payment for free, without a settlement company, without an attorney, and without borrowing another dollar: the reconciliation clause, sometimes called a true-up. It exists because the funder needs it to exist, legally. Almost no merchant knows it is there, and the funders are in no hurry to explain it. This guide is the explanation, including the arithmetic and the exact steps to invoke yours.

What does a reconciliation clause promise?

A reconciliation clause promises that your payments will be adjusted, on request, to match the percentage of actual revenue your contract says the funder purchased. An MCA is legally a purchase of a specified percentage of your future revenue, but in practice the funder pulls a fixed dollar amount each day, calculated from an estimate of your sales made at underwriting. When real revenue falls below that estimate, the fixed pull starts taking more than the purchased percentage. Reconciliation is the mechanism that corrects it.

This is not a courtesy or a hardship favor. California’s Department of Business Oversight, now the Department of Financial Protection and Innovation, put it plainly in an April 2020 advisory to small businesses: MCA payments may be lowered when revenue falls, merchants with fixed daily payments can typically reconcile payments to actual income, and merchants should file complaints when providers refuse. Under most contracts, reconciliation is a right you already paid for.

Here is what a true-up looks like in numbers. Say your contract sold the funder 15 percent of future revenue, and at signing the funder estimated your revenue at $60,000 a month. It set the fixed debit accordingly: 15 percent of $60,000 is $9,000 a month, which over 20 business days is $450 per day. Then a slow season hits and revenue drops to $40,000. The contract’s percentage says the funder is entitled to 15 percent of $40,000, which is $6,000 a month, or $300 per day. But the fixed debit keeps pulling $450, collecting $9,000: $3,000 more than the purchased share. A successful reconciliation resets the daily payment to about $300 while revenue stays at $40,000, and under many clauses the $3,000 overcollection is credited or refunded. Your balance does not change. The pace does, and in a bad month the pace is what kills.

Why do funders rarely mention it?

Because the clause costs them collection speed, and because its quiet existence is doing a different job: making the contract defensible in court. Funders write reconciliation provisions so the agreement looks like a genuine revenue purchase rather than a fixed-payment loan. Whether they honor the provision when a merchant actually invokes it is another matter: published commentary and the California regulator’s advisory both describe clauses that are buried, conditional, and structured so the merchant must proactively apply with documentation (Credible Law, “MCA Reconciliation Rights,” 2026; California Department of Business Oversight, 2020).

The practical consequence: nobody will invoke this clause for you by default. The merchant who reads the contract, follows its procedure exactly, and creates a paper trail is in a completely different position from the merchant who calls the funder’s collections line and asks nicely.

How do I request reconciliation in writing?

Follow your contract’s own procedure to the letter. The steps below fit most agreements; where your contract specifies different notice details, the contract wins:

1. Find the clause. Search your agreement for “reconciliation”, “reconcile”, “adjustment”, or “true-up”. Note the section number, what it entitles you to, what documents it requires, the deadline it gives the funder to respond, and the notice address or email it designates.
2. Write a dated request that names the clause. Identify your business, the agreement date, and the section number. State that actual revenue has fallen below the estimate used to set your payment, and that you are requesting reconciliation of the daily payment to the specified percentage of actual revenue, per the clause.
3. Attach the documentation. Bank statements for the relevant months, processing statements if applicable, and a one-page comparison: estimated revenue versus actual, and the current debit versus the trued-up figure your arithmetic supports. Show your math the way the example above does.
4. Send it the provable way. Use the notice method the contract designates, and add certified mail or a delivery-tracked email. Keep everything: the request, the attachments, the proof of delivery, and every reply.
5. Diarize the response deadline. Many clauses give the funder a set number of days to adjust. Calendar it the day you send, and log what actually happens to your debits after.

Do not stop or block the ACH while you wait. Under most agreements, blocking payments is a default event even when a reconciliation request is pending, and a default hands the funder remedies that dwarf the payment problem you were solving. Invoking a contractual right and breaching the contract are opposite moves; keep them separate.

What documents do I need to send?

The file that gets requests granted is short and verifiable: complete business bank statements for the affected months, not screenshots; card processing statements if revenue runs through a processor; and the month-by-month comparison against the revenue basis in your contract. If your agreement lists required documents, match the list exactly, in order, so the funder cannot stall on a technicality. Leave out what is not asked for: tax returns and profit-and-loss statements are usually unnecessary for a true-up, which is about revenue, not profit.

What if the funder ignores or refuses my request?

Escalate on paper. Send a second request referencing the first, with its delivery proof. If your funder is subject to a state disclosure or oversight regime, file a complaint: California’s DFPI explicitly advises merchants to complain when providers refuse reconciliation, and state attorneys general take these complaints. Then get help: this is the point where a documented reconciliation file becomes the foundation for a negotiated restructuring or settlement, and where our team, or a licensed attorney, has something concrete to work with. If the refusal comes with escalation, default notices, lien letters to your customers, or a frozen account, see our guide to UCC lien and MCA default help, because the clock matters from there.

A refusal is also evidence. Keep it.

Why does the clause matter in court?

Because it sits at the center of the biggest legal question in this industry: is an MCA a purchase or a disguised loan? Courts weighing recharacterization look at whether repayment truly varies with revenue, and a funder that refuses to honor its own reconciliation clause is undermining the “purchase” story its contract depends on. The stakes are not theoretical. In January 2025, the New York Attorney General secured a judgment of $1.065 billion against Yellowstone Capital and related entities over advances alleged to be disguised usurious loans, including cancellation of about $534.6 million owed by small businesses (New York Attorney General, 2025).

None of this means your contract is a disguised loan or that a refusal wins you a case: those are legal determinations for a licensed attorney in your state, not for a blog post or a settlement company. It does mean your documented reconciliation request and the funder’s response are worth preserving carefully, whichever way your situation goes.

What can reconciliation not fix?

Reconciliation lowers the payment, never the balance. The factor rate fixed your total repayment on day one, and a true-up spreads that same total over more time. If revenue recovers, many clauses adjust the payment back up. And reconciliation is per contract: each advance in a stack must be reconciled separately, under its own clause, with its own documentation, which is why a trued-up deep stack is still a deep stack. Three positions each taking their corrected percentage can still out-pull your margin.

So place the clause honestly in your toolkit. It is the free, fast, contract-based move for a revenue dip on a manageable balance, and it is the first thing to try before paying anyone for help. When the balance itself is the problem, the options are different: we compared all of them, side by side, in the six ways out of a merchant cash advance, and when the choice narrows to court versus negotiation, our comparison of bankruptcy and MCA settlement walks that line. For balances that need negotiating down rather than re-pacing, that is what MCA debt settlement exists for.

Common questions