Reconciliation clause

## Why the clause is there at all
An advance is priced and documented as the purchase of a percentage of future receipts. Collecting a fixed daily or weekly amount is an administrative convenience - an estimate of what that percentage will produce. The reconciliation clause is the mechanism that reconnects the estimate to reality.

It also does a second job. When a court is asked whether an advance was really a loan in disguise, the features most often examined are the reconciliation right, whether the term is finite or indefinite, and whether recourse extends to ordinary non-payment. A workable reconciliation right supports the purchase characterisation. That analysis is governed by the law named in the agreement, turns on the specific wording and the parties' actual conduct, and has not come out the same way everywhere.

The practical consequence for a business owner is that the clause has two audiences: you, in a bad month, and a judge, later. It is drafted with both in mind, and they do not want the same thing from it.

## Mandatory versus discretionary
This is the entire distinction, and it lives in one verb.

• Mandatory. "Upon Merchant's request, Funder shall reconcile..." The funder is obliged. Refusing is a breach of the agreement, and the merchant has something enforceable.
• Discretionary. "Funder may, in its sole and absolute discretion, adjust..." There is no obligation. The clause describes a courtesy the funder is free to withhold, and a decision the contract expressly commits to sole discretion is difficult to attack.

Between those sit the drafts that give with one sentence and take with the next: reconciliation "subject to Funder's verification and approval"; available "no more than once per calendar month"; permitted only where "no Event of Default has occurred or is continuing" - which a merchant with collapsing receipts and one returned debit already is. Read the sentence after the promise, not just the promise.

## The procedural conditions
Even a mandatory clause is only as good as what it demands. Common conditions, each of which can make it unusable in the week it is needed:

• A written request, sometimes to a specified address or portal, sometimes by certified mail
• A deadline - within a set number of days of the end of the period, or before the period closes. Miss it and that period is closed permanently, however bad it was
• Complete bank statements for the period, and processing statements where card volume is involved
• Sometimes a signed certification of receipts, an accountant's letter, or authorisation for the funder to pull bank data directly
• Continued authorisation to debit at the existing amount while the request is reviewed, with no suspension in the interim
• No outstanding default - and a returned debit is an event of default in most agreements

None of these are unreasonable individually. Together, and applied to a business in its worst month, they can amount to a right that exists on paper and cannot be exercised in practice.

## What reconciliation actually delivers
Almost always: a recalculated forward payment, and sometimes a credit or refund of amounts collected above the percentage. Almost never: a reduction in the purchased amount. The obligation is unchanged and the collection period stretches. A merchant expecting relief on the total owed is reading the wrong clause - that would be a settlement, which is a different negotiation entirely.

## The four questions
Read the clause for: shall or may; who verifies and whether their approval is discretionary; what documents are required and by when; and whether the adjustment is prospective only or includes a refund of the overcollection.