May 26, 2026 – By Christian Smith, Berkshire Financial Services
Your MCA contract has a clause that says your payment adjusts when your revenue drops. Read it carefully. Then ask yourself when that adjustment ever actually happened. For most business owners carrying MCA debt, the answer is never. That is not an accident. The clause was written that way on purpose.
What the Clause Says on Paper
Almost every merchant cash advance agreement contains a reconciliation provision. The language varies by funder, but the concept is consistent. If your revenue declines, you can request an adjustment to your daily or weekly payment. The payment is supposed to be recalculated as the originally agreed percentage of your actual receivables. If the funder purchased 15 percent of your future receivables and your receivables dropped by half, your payment should drop by half.
That is what a real purchase of future receivables looks like. A fixed daily payment that never changes regardless of revenue is not a purchase of future receivables. It is a loan. That distinction is the entire foundation of how courts evaluate these contracts.
The reconciliation clause exists in the contract for one reason. Without it, the MCA looks identical to a fixed-payment loan, which means it is subject to usury law. Funders need the clause there to defend the product structure. Whether they actually honor it is a separate question entirely.
The Mechanism That Makes It Unenforceable
This is where the engineering of the sham becomes visible. Read your reconciliation clause again. Look for four things.
The first is the trigger. Real reconciliation ties the adjustment to a measurable event. Revenue drops below a baseline. Sham reconciliation replaces the trigger with phrases like solely at funder’s discretion or upon funder’s review and approval. There is no trigger. The funder decides whether reconciliation ever happens, and the funder’s incentive is always to decide it does not.
The second is the process. Funders require the merchant to initiate the request in writing, provide extensive bank statements within a narrow window, and submit to a review the funder controls. If documentation is deemed insufficient, the request is denied. If the merchant misses the window, the request is treated as withdrawn. Every step is a door the funder can close.
The third is the remedy. What happens if the funder refuses a reconciliation you are entitled to? In most contracts, nothing. There is no defined consequence for a wrongful denial. The merchant has a right on paper with no enforcement mechanism behind it.
The fourth is the definition of receivables. Some contracts define the receivables being purchased so narrowly that most of the business’s actual revenue falls outside the definition. Credit card sales only. Revenue from a single processor. When the receivables base is artificially narrow, the calculation never reflects what the business is actually generating.
What Courts Found
The New York Appellate Division addressed this directly in People v. Richmond Capital Group, decided February 19, 2026. The court affirmed a 77 million dollar judgment against MCA lenders on four grounds. One was that the reconciliation provisions in the agreements were a sham.
The finding was specific. Reconciliation clauses existed in the contracts. In practice, no reconciliation was ever performed. Merchants requested adjustments when revenue dropped. The lenders denied them. The payments stayed fixed regardless of what the business generated. The court looked at what actually happened, not just what the contract said, and called it what it was. A fixed-payment loan.
That finding is not limited to Richmond Capital. The same analysis applies to every MCA contract with a reconciliation clause that was never honored. The Anadrill ruling in January 2026 went further, holding that a reconciliation provision can be deemed illusory if the funder makes the process so burdensome or so easy to deny that the right does not practically exist.
An illusory reconciliation right is no reconciliation right at all. And an MCA without genuine reconciliation is a loan subject to usury law.
What This Means for Your Contract
If your MCA payment has never adjusted despite months or years of revenue changes, you have a factual record that reconciliation was never performed. That record is evidence. It is the same evidence courts used in Richmond Capital to call the clause a sham and the transaction a loan.
This does not require you to have asked for reconciliation and been denied. The absence of any reconciliation over the life of the contract is itself evidence of a clause that was never intended to function. Courts are looking at actual conduct, not just contract language.
The lender wrote the clause to defend the product in court. The lender’s own conduct in never honoring it is what defeats that defense. If your contract contains a reconciliation clause that has never been used, what you are carrying may not be a purchase of future receivables. It may be a loan.
The ruling does not do the work. The structure does. Enrollment is what activates the structure.
To speak with a Berkshire Financial Services Finance Manager about your file, call 1-800-801-1019.
Informational purposes only. Not legal advice. Berkshire Financial Services is not a law firm. Results vary.