Merchant Cash Advance In Collections What To Do


Merchant Cash Advance In Collections: What To Do

Getting a merchant cash advance can be a great way for a business to quickly access capital, but things can go south if the advance ends up in collections. So what should you do if your merchant cash advance is in default and you get calls from collectors demanding repayment? Here’s a guide to navigate this stressful situation and protect your rights.

First, Don’t Panic

It’s understandable to feel anxious if collectors start calling about a debt, but don’t let fear push you into making rushed decisions. Take a deep breath and remember:

  • Collectors must abide by laws like the Fair Debt Collection Practices Act. They cannot harass or threaten you.
  • You have certain rights in dealing with collectors. Know these rights.
  • You have options to resolve debts, even in collections. Explore these options.

Review Your Merchant Cash Advance Agreement

Before anything else, pull out your original merchant cash advance agreement and give it a close read. This contract outlines the terms you agreed to. Key items to review:

  • The repayment amount, schedule, and mechanism (like a percentage of daily card receipts).
  • Events that trigger default, such as declining card sales.
  • Fees for late payments or default.
  • Rights of the funder to pursue collections.

Knowing these terms will help you better understand the collectors’ demands and your responsibilities. If you don’t have the agreement, request a copy from the funder.

Verify The Debt

Person on phone

Before paying anything, verify that you actually owe this debt and that the collector contacting you has the right to collect. Under the FDCPA, collectors must provide proof if you dispute or request validation of the debt. Specifically ask for:

  • A copy of the signed merchant cash advance agreement with your signature.
  • An itemized statement showing the original advance amount, payments made, fees, interest, and remaining balance.
  • Proof that they have authority from the funder to collect on this debt.

Get this validation in writing and review it closely. If anything seems off, you can dispute the debt validity in writing. The collector must then cease collection until providing evidence. Disputing resets the clock on how long unpaid debts can appear on your credit report.

Negotiate With The Collector

Once you’ve validated the debt, decide if you want to negotiate. Many collectors buy defaulted debts for pennies on the dollar, so they have more flexibility than the original funder in settling for less. Potential negotiating tactics:

  • Offer a lump sum: Propose a one-time lower payment to settle the debt. Save this route for if you have access to funds.
  • Request lower installment payments: If no lump sum, ask for smaller installment payments over time.
  • Seek removal from credit reports: Offer payment if the collector omits the debt from your credit file.

Get any negotiation deal in writing before paying. Save all written communication. Be wary of threats or pressure for immediate payment.

Know Your Protections Under The FDCPA

FDCPA book

The Fair Debt Collection Practices Act prohibits certain abusive collector behavior. Under the FDCPA, collectors cannot:

  • Use threats of violence or harm.
  • Publish lists of consumers who refuse to pay debts.
  • Use obscene or profane language.
  • Repeatedly use the phone to annoy someone.
  • Misrepresent the amount you owe.
  • Falsely represent themselves as attorneys or law enforcement agents.
  • Falsely threaten legal action like a lawsuit or arrest.

Document any FDCPA violations and report them to the Consumer Financial Protection Bureau. You can sue violators for up to $1,000 plus damages.

Explore Debt Relief Options

If unable to pay, consider options like debt settlement or bankruptcy. Debt settlement involves negotiating to pay a smaller amount in exchange for the collector wiping the slate clean. Bankruptcy legally discharges debts. Consulting a credit counselor or attorney can help weigh the pros and cons of each strategy.

Practice Good Financial Habits Going Forward

Getting out of merchant cash advance debt provides an opportunity to avoid further issues. Some tips:

  • Build an emergency fund to withstand financial hits.
  • Explore more affordable capital options like SBA loans.
  • Consult professionals before signing complex financing agreements.
  • Work with an accountant to improve business financial management.

With the right moves, you can resolve merchant cash advance collections and get your finances back on track. Just stay calm, know your rights, and seek assistance if needed.

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