A missed daily debit is more common than most merchants think. Funders see it constantly. The first miss is rarely catastrophic. The third one in a single week starts the default clock.
Here's exactly what happens, in order, and the options most merchants don't know they have at each stage.
First miss: a returned ACH
When the daily debit hits your account and there isn't enough money, your bank returns the ACH. Two things happen:
- Your bank charges you a returned-item fee — typically $25-$35.
- The MCA funder receives the ACH return and adds the missed amount to your tail.
One return inside a 7-day window doesn't trigger anything. The funder retries the next business day. Most files have one or two returns over the term and nobody escalates.
Three returns: the call
Three returned ACHs in a 7-day rolling window — even non-consecutive — triggers the funder's collection desk. You'll get a call within 48 hours of the third return. The call is usually a soft conversation: "Hey, what's going on, can we work this out."
This is the moment to be honest. Funders have workout playbooks. The collector on the phone has authority to:
- Reduce the daily payment temporarily (50% for 5-10 business days while you stabilize).
- Pause the debits entirely for 5-7 days.
- Switch you from daily ACH to weekly ACH if the cash-flow problem is timing-based.
- Modify the payment to a percentage holdback (smaller take on slow days, larger on strong days).
Most owners don't know these options exist because the contract doesn't list them. They exist because funders prefer a paid-down advance over a defaulted one.
Five returns or seven days of misses: default territory
Most contracts list "default" at five missed payments in a 30-day window or seven consecutive missed days. When you cross either line, the funder's recovery pathway opens:
- Confession of Judgment (where contracts include one) — funder files the COJ and gets a court judgment without a hearing. Bank accounts can be frozen.
- Personal-guarantee enforcement — if you signed a personal guarantee, the funder can pursue your personal assets.
- UCC-1 lien enforcement — the lien on your business assets becomes actionable.
- Reporting to industry blacklists — other MCA funders will see you as a defaulter.
Default is reversible at this stage if you call before the COJ is filed. Once filed, the legal mechanic is much harder to undo.
The workout call: what to actually say
If you're heading into a missed payment, the right move is to call before the miss, not after. The script is short:
- "I'm going to be short on the daily for the next [N] days because [specific reason]."
- "What are the workout options on my contract?"
- "Can we reduce the daily by [X]% for [Y] days?"
The specific reason matters. "Cash flow issues" sounds generic. "Net-60 receivable from my biggest customer is delayed by 3 weeks" sounds like a real problem with a real end date. Funders work with the second one.
When you genuinely can't pay back at all
If the business is closing or you've decided you can't continue, your options are: (1) negotiate a settlement — funders will sometimes take 60-70% of the remaining balance to close the file, (2) consult a debt-settlement attorney before missing more payments, or (3) explore Chapter 11 if the broader financials warrant it. None of these is fast or cheap, but each is better than a default judgment that follows you personally for 10+ years.
Sources & References
- Bank denial and small business credit access figures cited in this piece are derived from the Federal Reserve Small Business Credit Survey. Approval rates for small business credit applications at large banks have ranged from approximately 13%-31% across recent survey years, depending on bank category and reporting period.
- Small business finance landscape and lending program data: SBA Office of Advocacy.
- Merchant cash advance industry standards and disclosure practices: Small Business Finance Association (SBFA).
- Commercial financing disclosure regulations referenced (NY FAIR Act, CA SB 1235/666/362, VA, UT) are summarized from the published statutes; consult counsel for specific compliance application.