Brokers should understand this even though it happens after their involvement ends, because what you tell a merchant during the sale determines what they do when revenue drops — and the difference between reconciliation and default is often just knowing the provision exists.
Reconciliation first
A genuine purchase of receivables carries the right to reconcile: if receipts fall, the remittance is adjusted so it stays the agreed percentage rather than a fixed sum. Merchants routinely do not know this and stop paying instead, which turns a manageable adjustment into a breach. Telling them the provision exists at signing costs a sentence.
| Situation | What follows |
|---|---|
| Revenue falls, merchant requests reconciliation | Remittance adjusted; not a default |
| Payments stop without contact | Default, then collection |
| Receipts moved to another bank account | Treated as a breach, and worse than a shortfall |
| New position taken in breach of the agreement | Can accelerate the whole balance |
| Business closes genuinely | Personal guarantee pursued, UCC enforced |
What the funder can do
- Enforce the UCC-1 lien against business assets.
- Pursue the personal guarantee, where one was given — which is most of the time.
- Contact the merchant’s payment processor.
- Litigate, and in some historic paper rely on a confession of judgment, though those have been curtailed.
Most funders would rather restructure than litigate, which is why the merchant who calls before missing payments generally gets a different outcome from the one who goes quiet.
Questions brokers ask
What happens if a merchant cannot pay an advance?
They should invoke the reconciliation provision, which adjusts the remittance to the agreed share of actual receipts. Stopping payment without contact is a default and leads to collection instead.
What is reconciliation?
The right to have the daily or weekly remittance adjusted when revenue falls, so it remains a percentage of receipts rather than a fixed amount. Merchants routinely do not know it exists.
What can a funder do after a default?
Enforce the UCC lien against business assets, pursue the personal guarantee, contact the payment processor and litigate. Most would rather restructure than litigate if the merchant makes contact.
Why is moving bank accounts worse than missing payments?
Because it is treated as a deliberate breach rather than a shortfall. It is the fact pattern funders pursue hardest and it usually ends any prospect of a negotiated outcome.
Should a broker explain default to a merchant?
Explain reconciliation, at least. A merchant who knows the provision exists calls when revenue drops instead of going quiet, and that single sentence at signing changes the outcome.
Reference
Holdback and daily paymentThe debit that has to clear every business day for an advance not to get here.
Alex Makowski
Founder, Infinite Bookings
Runs the lead generation operation behind Infinite Bookings — paid traffic, the funding application, and the delivery pipeline that puts records into brokers’ CRMs.
Reachable directly at alex@infinitebookings.com or 732-609-7182.