No enemy is worse than bad advice – Sophocles 460 BC


We see advertisements giving a myriad of reasons why MCAs and other alternative products are the best form of financing for a business; the process is simple, funding is quick and efficient, there are no credit checks and no collateral is needed in order to get funded…and the list goes on.

When it comes to merchant cash advances, brokers are invaluable to both lenders and merchants, however, many of these brokers don’t understand how businesses truly work.  They’re not familiar with profit margins, retainage, balance sheets, bidding processes, cyclability, the differences between accrued versus cash accounting, the impact of government contracts, etc.  There are no regulations, no certifications and no educational requirements needed in order to bring an MCA to a customer.  Typically, most brokers only know how MCAs work, and they have a working knowledge of how to best provide that MCA.

But most brokers are not qualified to offer the financial business advice that would allow the merchant to make educated decisions based on their circumstances. Brokers often don’t work with their clients to position them to be financially sound. Their advice is limited to the cash advance itself and not the exit strategies or longer-term financing that would allow the merchant to get funded in other ways.

Brokers often offer additional MCAs to their existing client base, which automatically triggers the inability to pay during the term of the merchant cash advance. This is the most significant problem plaguing the merchant cash advance industry. Before long, the merchant is offered an advance to pay for an advance OR to replace cashflow OR to take a vacation OR to make payroll…even though there is no replaceable revenue. Basically, all the reasons to NOT take a cash advance.

The Time Value of Collection

It is no surprise that statistics show the merchant cash advance industry is riddled with defaults and judgments.  When a merchant defaults, the clock begins ticking.  Time is of the essence.  Every minute of every day reduces the lenders’ likelihood that they will be able to collect the debt in full. At the same time, MCAs have caused the birth of hundreds of new debt relief companies which, inexplicably, encourage merchants to stop paying, take a break, or just default. Again, all detrimental to the industry.

These practices by the debt relief companies hurt anybody who has a vested interest in merchant cash advances, while enriching themselves. Here is how everybody gets hurt by these practices:

  • Merchants – Unfortunately, because of the bad information they receive, merchants think that the relief of not paying daily or weekly is a good thing because their cash flow will temporarily be better. But this is short-sighted and goes against every basic business principle for the following reasons:
    • Accountability
    • Responsibility
    • Planning and growth

Stopping payments position an otherwise viable business completely un-bankable for many years and extremely quickly. Merchants are often pushed into immediate bankruptcy because there is no glimmer of hope.  Most private investors and alternative lenders WILL NOT fund ANY merchant after a default like this.  Why would they?  We don’t blame them.  The risk of repeated default is too high.

    • Lenders – The lender goes to great lengths to be loyal to their investors and credit facilities. The investor places trust in the lender and then the lender place an incredible amount of trust in the broker and merchant.  When the repayments stop, the problems create a domino effect for all involved.  These complications may include:
      • A review of the underwriting process, legal and/or compliance by both the lender & investor.
      • Lender’s inability to pay their own investors
      • Undercapitalization issues
      • Potential legal problems
      • Collection expenses
      • Legal expenses
  • Investors – the investors will usually be hurt by not realizing the return on their investment…or, worse, losing their investment altogether. The inability to deploy additional funds due to lack of liquidity is a huge issue.

Fixing the Problem

Phoenix Funding Advisors is continuously searching for better ways to resolve defaults, recover monies for the lenders, and improve financial business health for the merchants.  With the decision to ban COJs in New York for out-of-state merchants signed on August 30, 2019, timing becomes an even greater obstacle for the lender to collect quickly.

Furthermore, while the enforcement of the UCC lien may help to partially secure balances, it will often cripple the merchant’s ability to run and operate their business.  Their contracts and receivables are locked, they are unable to meet payroll, or purchase inventory.  This makes the collection of the remaining balance a challenge. The lender is still left with uncollected balances, and the merchant may have no choice but to close their business or file bankruptcy.  Result:  stalemate…the point of no return has been reached!

This can be avoided.

It is important that the collection process begins immediately…best done immediately upon a single missed payment and before further deterioration.  We don’t think of ourselves as collectors, instead we facilitate a transparent discussion as to how the merchant can pay back the lenders and create a win-win situation for all parties involved.

Merchants who work with PFA place their trust in us.  Absent a full or partial refinancing, our success collecting for the lender is based on the fact that the financial analysis and proposal we produce places a heavy emphasis on repaying short-term debt in full.

Merchants are already in distress; however, after a thorough review of the client’s contracts, future revenues and payables, e.g. vendors, insurance, state or federal government taxes, it often becomes apparent that the merchant has the ability to negotiate directly with the other creditors with our help, thereby, freeing up the funds necessary to repay short-term debt.

Part of the problem is that most collectors, who work for the lenders, never explore this opportunity for various reasons. They are simply putting pressure on the merchant without regards to where the repayment funds come from. This goes back to what is discussed above, which is not understanding business. A full and deep analysis is performed by us and thus a solution for both, the lender and merchant is created.

PFA’s thorough understanding of how businesses work, together with our understanding of the lender’s needs, puts us in favorable position to get this done quickly and efficiently.



Having trouble collecting?  SEND US YOUR FILES   (Minimum revenue of $150,000 monthly)

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