# MCA collections agency process

> MCA collections agencies engage when merchants default on contracts. The standard process: (1) funder attempts internal collection 30-60 days, (2) account transferred to collections agency or attorney, (3) UCC enforcement against business assets, (4) personal guarantee enforcement against owner assets, (5) judgment enforcement (garnishment, levy, lien) if litigation prevails. Recovery rates vary by jurisdiction and asset profile; typical net recovery after collection costs is 25-55% of defaulted balance.

MCA collections agency process defines what happens after a merchant defaults on an MCA contract. The process is more aggressive and faster than consumer-debt collection due to commercial-contract nature and the typical inclusion of confession of judgment (COJ) and other enforcement-friendly contract provisions. Understanding the standard process helps merchants in distress anticipate enforcement actions and negotiate resolution.

**The mechanics — the standard collections sequence.** Six stages:

1. **Internal collection (days 1-60 post-default).** Funder's in-house collection team contacts merchant directly. Calls, emails, formal default notices. Goal is to cure default through reconciliation, modification, or partial payment plan.

2. **Pre-litigation outside collection (days 30-90).** Funder refers account to collection law firm or specialized collection agency. Outside party sends demand letters, makes collection calls, may begin pre-suit negotiation.

3. **UCC enforcement (anytime after default).** Funder files UCC enforcement notices, may attempt collection of business receivables under perfected security interest. Some funders use UCC enforcement aggressively; others reserve it for serious defaults.

4. **Litigation initiation (typically days 60-120).** Collection counsel files lawsuit against business and personal guarantor. If COJ was signed, may proceed by confession of judgment rather than standard lawsuit (where state law permits).

5. **Judgment entry and enforcement (post-judgment).** Court enters judgment against business and/or personal guarantor. Funder pursues enforcement: bank levy, wage garnishment (personal guarantor), property liens, asset seizure.

6. **Settlement, payment plan, or further collection (ongoing).** Most cases ultimately resolve through settlement at discount (typically 35-70 cents on the dollar) or extended payment plan; minority proceed to full judgment enforcement.

**The economics — collection agency compensation structures.** Three patterns:

1. **Contingency fee.** Collection agency receives percentage of amount collected (typical 25-50%). Higher contingency for older or more difficult collections. Aligns agency incentive with collection success.

2. **Hourly fee plus expense.** Attorney bills hourly; merchant or funder pays expenses (court filing fees, service costs, deposition costs). Used for complex collections requiring extensive litigation.

3. **Hybrid (reduced contingency plus hourly).** Lower contingency percentage plus hourly fee for litigation work. Aligns incentive while compensating for complex matters.

**The mechanics — UCC enforcement mechanics.** Five UCC enforcement actions:

1. **Notification to account debtors.** Funder notifies merchant's customers that receivables payments should be directed to funder rather than merchant. Disrupts merchant's customer relationships and cash flow.

2. **Receivables collection demand.** Funder demands turnover of receivables from merchant or directly from customers. Some jurisdictions permit pre-judgment receivables collection under UCC.

3. **Equipment or asset repossession.** If UCC covers specific equipment or assets, funder may exercise repossession rights. Less common in MCA than equipment-finance contexts because MCAs typically cover receivables broadly rather than specific equipment.

4. **Bank account interference.** Funder uses UCC perfection in deposit accounts to freeze merchant's business bank account. Available in some jurisdictions and contract structures.

5. **Strict foreclosure or commercially reasonable disposition.** Funder takes ownership of collateral in satisfaction of debt or disposes of collateral commercially. Procedural requirements must be met.

**The mechanics — personal guarantee enforcement.** Four standard enforcement paths:

1. **Direct lawsuit against guarantor.** Personal lawsuit naming guarantor as defendant; seeks judgment against guarantor personally.

2. **Confession of judgment (where permitted).** If COJ was signed, funder may proceed by filing the COJ in court for entry of judgment without full lawsuit. New York COJ usage was substantially restricted post-2019; other states still permit.

3. **Asset discovery.** Post-judgment discovery to identify guarantor's assets (bank accounts, real estate, vehicles, retirement accounts where permitted).

4. **Asset seizure and garnishment.** Bank levy on personal accounts, wage garnishment from employment, real property liens. State laws vary on what assets are exempt.

**The economics — net recovery rates for defaulted MCAs.** Three tiers:

1. **High recovery (60-80% of defaulted balance).** Defaults where merchant has identifiable assets, active business operations, and willingness to settle. Typically resolve through reconciliation or settlement at 60-80 cents on the dollar.

2. **Moderate recovery (30-55%).** Defaults where merchant has limited assets but personal guarantor has some recoverable assets or income. Resolve through settlement at 35-55 cents on the dollar, or extended payment plan.

3. **Low recovery (5-25%).** Defaults where merchant has dissolved, personal guarantor is judgment-proof, or jurisdictional barriers prevent enforcement. Recovery typically limited to whatever can be collected via wage garnishment over extended period.

After collection costs (contingency fees, legal expenses), funder net recovery is typically 25-55% of defaulted balance across the portfolio average.

**The strategic insight — what merchants in distress should know.** Five principles:

1. **Engage early.** Reconciliation conversations are more successful before account moves to outside collection. Once in collections, mode shifts from accommodation to enforcement.

2. **Settlement is often available.** Most defaulted MCAs settle for 35-70 cents on the dollar. Settlement requires demonstrating inability to pay full amount and credible alternative (lump sum payment, structured plan, or bankruptcy threat).

3. **Personal guarantee exposure is real.** Personal guarantee creates personal liability that survives business dissolution. Personal asset protection planning is important before default situation arises.

4. **Bankruptcy is sometimes the best option.** When MCA balance exceeds business and personal asset base, bankruptcy may be appropriate; consult bankruptcy attorney early.

5. **Don't ignore collection contact.** Ignoring collection escalates the process to litigation rapidly. Engagement (even to negotiate settlement or payment plan) is materially better than non-response.

**The strategic insight — what funders consider in settlement negotiation.** Four factors:

1. **Asset availability.** Demonstrated inability to pay full amount based on bank statements, asset documentation.

2. **Bankruptcy alternative.** Credible threat that bankruptcy would result in even lower recovery. Bankruptcy attorney engagement signals seriousness.

3. **Continuing business viability.** Active business operations support payment plan negotiation; dissolved business limits options.

4. **Timing.** Earlier settlement (during pre-litigation phase) typically achieves better terms than post-judgment settlement (where funder has additional leverage).

**The honest framing.** MCA collections is more aggressive and faster than consumer-debt collection because commercial contracts include enforcement-friendly provisions (COJ, UCC perfection, personal guarantees) that consumer contracts don't. Merchants in default should expect formal collection contact within 30-60 days and litigation initiation within 60-120 days. The good news: settlement is typically available at 35-70 cents on the dollar; collection agencies generally prefer settlement to extended litigation. The bad news: personal guarantee enforcement extends collection beyond business dissolution and can affect personal financial life for years. Merchants approaching default should engage with funder before collection escalation, evaluate bankruptcy as alternative where appropriate, and protect personal assets that are legally protectable. Avoidance and ignoring collection contact universally produce worse outcomes than engagement.

## Related terms

- [MCA defaults and collections process](https://fundnode.co/llms/glossary/mca-defaults-collections-process) — MCA default cascade: missed ACH → cure period (5-10 days) → contract default → COJ filing (5-14 days) → bank account freeze (14-30 days) → personal guarantee pursuit → settlement negotiation.
- [MCA default collections process](https://fundnode.co/llms/glossary/mca-default-collections-process) — The sequence of events triggered when a merchant defaults on an MCA: NSF-trigger notification (1-3 days), in-house collections calls (3-14 days), third-party recovery firm assignment (15-45 days), legal demand letter (30-60 days), confession of judgment filing or civil suit (45-120 days), and post-judgment asset attachment (60-180+ days). The full cycle typically resolves within 6-9 months.
- [MCA judgment collections](https://fundnode.co/llms/glossary/mca-judgment-collections) — The post-default process where a funder obtains and enforces a court judgment against the merchant and personal guarantor — typically using bank levies, receivables liens, asset seizure, and wage garnishment under UCC Article 9 and state judgment-enforcement law.
- [UCC filing (MCA)](https://fundnode.co/llms/glossary/uccs-and-mca-liens) — A public lien an MCA funder files against business assets, securing their position. Triggers credit-report flags and can block future funding from other lenders.

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