6 Steps MCA Companies Take to Seize Accounts Receivable

If you’re behind on an MCA, and you’re wondering how they actually get to your money – this is the playbook. Not theory. Not what the contract says in legalese. What actually happens, in the order it happens, once a funder decides you’re done.

Short answer: They don’t need to sue you to start choking off your receivables. The UCC-1 they filed on day one, is the weapon. Everything that follows is them pulling the trigger.

Step 1: They pull the UCC-1 they already filed on you

When you signed the MCA agreement, the funder filed a UCC-1 financing statement against your business. You probably didn’t read it. Most people don’t. That filing gives them a secured interest in your receivables – meaning, every dollar that’s owed to your business, is technically collateral for their advance.

This is a public filing. Anyone can search it. And the moment you default, the funder pulls up that UCC-1 and starts using it as leverage against everyone who owes you money.

Step 2: They send notices to your customers directly

This is the part that blindsides most business owners. The funder will send a “Notice of Assignment,” or a “Notice to Account Debtor,” to your customers. The letter tells your customer that your receivables have been assigned to the funder, and that any payments they make, need to go to the funder’s account – not yours.

Your customer receives this on their accounts payable person’s desk. They don’t know you personally. They don’t want a legal fight. They see a notice with UCC filing numbers, legal language, and a routing number – they redirect the payment. Just like that.

You find out when you call your customer asking where the payment is, and they tell you they sent it weeks ago, to an account you’ve never heard of.

Step 3: They hit your payment processor

If you run credit cards, the funder goes directly to your processor – Stripe, Square, whoever. They serve the processor with the UCC-1 and a demand letter. The processor, who doesn’t want to be in the middle of this, freezes or redirects the settlement. The money you thought was landing in your account tomorrow, now lands in the funder’s account.

Some processors will fight this, most won’t. Processors are risk-averse by design. When they see UCC paperwork with their name on it, they move fast to protect themselves, not you.

Step 4: They garnish your merchant account if there’s a lockbox arrangement

A lot of MCA agreements include a lockbox clause, or a split-funding arrangement, that most business owners don’t remember agreeing to. What this means is, the funder has the right to insert themselves between you and your deposits. All your receivables, get routed through an account they control first, and they take their cut before anything reaches you.

If you didn’t have a lockbox to start, they’ll try to force one as part of the default remedy. And if you resist, that’s where step 5 comes in.

Step 5: They file for a Confession of Judgment, or sue for a restraining order

Most MCA contracts, especially older ones, include a Confession of Judgment – where you agreed, at signing, that if you default the funder can walk into court and get a judgment against you, without you being notified, without a hearing, without you being able to defend. New York banned these for out-of-state defendants in 2019, but plenty of older agreements still have them, and funders still use them in certain jurisdictions.

With a judgment in hand, the funder walks into your bank with a restraining notice, and freezes every account with your name or your business’s name on it. Within hours. You find out when your debit card gets declined at a gas station.

For newer agreements without a COJ, the funder files an emergency motion for a TRO – a temporary restraining order. Same outcome, a little slower. Your accounts get frozen, your receivables get intercepted, and you’re now fighting from underneath.

Step 6: They subpoena your bank and your books

Once they have a judgment, or a TRO, the funder’s attorney will subpoena your bank records, your QuickBooks, your customer list, and anything else they can reach. They’re looking for two things – money you’ve moved, and customers they haven’t hit yet. Every account you’ve ever used, every customer who’s paid you in the last year, becomes a target.

If they find out you moved money to a new bank account after the default – that’s fraudulent conveyance, and now you’ve got a personal liability problem on top of the business one.

What most business owners get wrong about this

They think the funder needs to win a lawsuit first. They don’t. Between the UCC-1, the COJ, the notices to customers, and the processor intercepts – the funder can choke off 80% of your cash flow before a judge has even looked at the file. By the time you hire an attorney, the damage is done, your customers are confused, your processor is frozen, and you’re trying to make payroll with whatever cash is left in the till.