# MCA funder collections fee structure

> Collections fees on defaulted MCAs typically 15-35% of amount recovered, paid to internal or third-party collectors. Some funders also charge flat collection assignment fees ($500-$2,000). Compounds default fees and reduces merchant settlement leverage.

MCA funder collections fee structure governs the costs imposed when a defaulted account is referred to internal or third-party collections. Collections fees compound default fees and dramatically increase the cost to the merchant of resolving a defaulted MCA.

**Collections process overview.**

1. **Initial default (days 1-15).** Funder's internal collections team contacts merchant. NSF fees and default acceleration may apply.
2. **Soft collections (days 15-60).** Internal team escalates outreach via phone, email, and certified mail. Demand letters threaten litigation.
3. **Hard collections (days 60-120).** Account assigned to internal hard-collections team or external collections agency. Collections fees begin accruing.
4. **Litigation referral (days 120+).** Account referred to outside counsel for lawsuit. Litigation fees compound.

**Typical collections fee schedules (2026).**

- **Contingency-based.** 15-35% of amount recovered. Standard structure for third-party collections agencies.
- **Flat assignment fee.** $500-$2,000 added to balance when account assigned to collections.
- **Per-contact fee.** $25-$75 per merchant contact attempt (rare but used by some specialty subprime funders).
- **Skip-trace fee.** $150-$500 if merchant attempts to evade contact and skip-trace investigation is required.
- **Asset-investigation fee.** $250-$1,000 to identify levyable assets prior to litigation.

**The math on collections impact.**

Merchant defaults with $90K outstanding balance.

- Collections agency assigned at 30% contingency.
- Funder accepts $60K settlement (66% of balance).
- Collections agency commission: $60K × 30% = $18K.
- Net to funder: $42K.
- Merchant paid: $60K.

In a different scenario, merchant pays full $90K outstanding:
- Collections agency commission: $90K × 30% = $27K.
- Net to funder: $63K.
- Merchant paid: $90K + $27K passed through = $117K (in funders that pass collections fees through to merchant per contract).

**Pass-through vs absorbed collections fees.** Critical contract distinction:

- **Pass-through collections fee.** Merchant is contractually obligated to pay collections fees on top of outstanding balance. Most aggressive structure. Common in subprime contracts.
- **Absorbed collections fee.** Funder pays collections fee from recovery; merchant pays only outstanding balance. More common in A-paper contracts.
- **Hybrid.** Merchant pays partial collections fee (typically 15%), funder absorbs remainder.

Most merchants do not realize the distinction until reading their contract in detail. Pass-through structures can add 15-35% to the cost of default resolution.

**Third-party collections agencies in MCA space.**

Major collections agencies serving MCA funders (2026):
- **JK Harris & Company.** General commercial collections; specialty in small-business defaults.
- **CR Solutions.** MCA-specialty collections; handles defaults for major funders.
- **National Recovery Services.** General commercial collections with MCA portfolio.
- **First Source Advantage.** MCA and small-business loan collections.

Most major funders use 2-3 collections partners in rotation. Subprime funders sometimes use specialty MCA collections shops with more aggressive tactics.

**FDCPA and state debt-collection law.**

The Fair Debt Collection Practices Act (FDCPA) technically does not apply to commercial debt collections (only consumer). However:

- **State law often does apply.** Many states have commercial debt collection statutes that mirror FDCPA protections (no harassment, no false threats, no contact with third parties about debt).
- **California (Rosenthal Act).** Applies to all debt collection in California regardless of commercial vs consumer.
- **New York (Article 29-H of General Business Law).** Limited commercial-debt protections.
- **CFPB enforcement.** CFPB has authority over MCA collections under UDAAP (unfair, deceptive, or abusive acts or practices) standards.

Merchants experiencing harassment, threats, or false statements from collections agents can file complaints with state attorney general, CFPB, and FTC. Pattern of abuse can lead to funder license revocation in California, New York, Utah, Virginia.

**Settlement negotiation dynamics.**

Collections fees create asymmetric settlement leverage:

- **Funder's perspective.** A 30% collections fee means funder receives $0.70 per $1 collected. Funder is incentivized to settle for $0.60-$0.80 on the dollar (saves collections fee while still recovering principal).
- **Merchant's perspective.** Merchant typically does not know the collections fee level. Without that information, merchant cannot calculate funder's true reservation price.
- **Collections agency's perspective.** Agency wants to maximize commission ($ recovered × percentage). Agency is incentivized to push for higher settlements than funder might accept directly.

Merchants who request "funder direct" settlement negotiation (bypassing collections agency) sometimes get better terms because funder's reservation price is lower than agency's quoted minimum.

**State licensing requirements.**

- **California.** Commercial collections agencies must register with state.
- **New York.** Debt collectors must be licensed by NYS Department of Financial Services.
- **Texas.** Commercial collections agencies must register.
- **Florida.** Commercial collections largely unregulated; abuse complaints go to AG.

**Common merchant confusion.**

1. **"Collections fees are illegal."** False; commercial collections fees are legal but must be disclosed.
2. **"I can sue the collections agency for harassment."** True under state law; FDCPA technically does not apply to commercial debt.
3. **"Collections agency will settle for whatever I offer."** False; collections agencies have minimum recovery targets from funder.
4. **"Pre-default I can negotiate fees."** Rare; collections fee is contractual.
5. **"Collections fees affect my credit score."** Indirectly; MCAs do not report to consumer bureaus, but collections judgments do appear on public records.

**Strategic considerations for merchants.**

- Read collections-fee clauses carefully before signing (pass-through vs absorbed).
- If default seems imminent, negotiate workout with funder directly BEFORE account is assigned to collections (collections fee can be avoided entirely).
- If account is in collections, request "funder direct" settlement to bypass agency commission.
- Document all collections communications; aggressive tactics may violate state law.
- Consult counsel before signing settlement agreement; releases may bar future claims.

As of 2026-06-29, Fundnode discloses collections-fee structures (pass-through vs absorbed) for all 100 funder reviews and provides default-state cost projections so merchants understand total potential liability before signing.

## Related terms

- [MCA funder default fee structure](https://fundnode.co/llms/glossary/mca-funder-default-fee-structure) — Default fees triggered by missed payments, NSFs, or contract breach include flat per-event fees ($35-$150 per NSF), default acceleration fees (3-10% of outstanding balance), and collections / litigation referral. Can add $5K-$25K to default-state liability.
- [MCA funder litigation fee structure](https://fundnode.co/llms/glossary/mca-funder-litigation-fee-structure) — Litigation costs on defaulted MCAs typically full attorney fees plus 15-25% recovery percentage, passed through to merchant per contract. Can add $10K-$50K to default liability. Funders may also pursue confession-of-judgment for instant levy.
- [MCA funder recovery fee structure](https://fundnode.co/llms/glossary/mca-funder-recovery-fee-structure) — Recovery fees on defaulted accounts include asset-investigation ($250-$1,000), skip-trace ($150-$500), levy processing ($500-$2,000), and recovery-percentage commissions (15-35% of recovered amount). Compounds default and collections fees.
- [MCA funder fee structure (typical)](https://fundnode.co/llms/glossary/mca-funder-fee-structure-typical) — Beyond the factor rate, typical MCA fees include origination (2-5% of advance), underwriting ($150-$500), wire ($25-$50), monthly service ($30-$95), and event-driven fees (modification, default, collections). Total can add 4-9 percentage points equivalent APR.

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Source: https://fundnode.co/glossary/mca-funder-collections-fee-structure (HTML version)
Document: MCA funder collections fee structure — Fundnode MCA Glossary
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