Reconciliation: the clause that decides what happens in a bad month

Reconciliation is the mechanism that is supposed to reconnect what leaves your account to what your business actually took in. When it works, a bad month costs you time rather than an overdraft. When it does not work, a bad month becomes a default. It is worth more attention than the factor rate.

What the clause is meant to do

The agreement entitles the funder to a specified percentage of receipts, but collects a fixed estimated amount. Reconciliation is the true-up. Over some defined period — a month, a fortnight, a calendar quarter — actual receipts are measured, the correct percentage is calculated, and the difference is either refunded to you, credited against future remittances, or used to reset the daily amount going forward.

Reconciliation does not reduce what you owe. The purchased amount is unchanged. What changes is the pace. A successful reconciliation stretches the deal out, which lowers the pressure on cash and raises the effective cost per month of nothing at all, because the dollar cost was fixed at the start.

The two shapes it comes in

What a reconciliation request actually has to contain

Read your own clause first; it governs. But a request that satisfies most drafting looks like this:

1. A clear statement of what you are invoking. Name the section number and say you are requesting reconciliation of remittances for a stated period. Do not call it a hardship request, a modification, or a payment plan. Those are different things and they get routed to a different desk.
2. The period covered. Exact dates, matching the period the contract defines.
3. Actual receipts for that period. Bank statements for every account into which receipts are deposited, and card processor statements if the deal is card-based. Complete statements, not screenshots of balances.
4. The arithmetic. Actual receipts multiplied by the specified percentage, set against the total actually debited in the period, and the resulting difference. Show it. Do not make the servicer derive it.
5. What you are asking for. A refund of the excess, a credit, a reset of the daily amount to a stated figure, or a combination. Be specific.
6. A signature from an authorised person, and the business and account details the contract requires.

Send it by whatever method the notice clause specifies — often that means a particular email address, or certified mail to a named address, and often "the address on the signature page" is not the address on the servicer's emails. Send it to both if in doubt. Keep the delivery receipt.

Timing, and why it is unforgiving

Many clauses require the request within a short window after the period closes. Miss the window and the right for that period is typically gone, even though nothing about your finances has changed. Diary the deadline on the day you fund, not on the day you get into trouble.

Also check the "not in default" condition. If a bounced debit has already put you technically in default, a reconciliation right conditioned on being current may be unavailable at exactly the moment it matters. That sequencing trap is the reason to reconcile early — after the first bad month, not the third.

If the request is ignored or refused

Put the second request in writing, reference the first by date, and ask for the specific contractual basis of any refusal. Keep everything.

There are two reasons for the paper trail. The practical one is that servicers respond to files that look organised, and a documented request with the arithmetic already done is cheaper for them to grant than to fight. The legal one is that a funder's actual handling of reconciliation is one of the things courts have looked at when asked whether a particular agreement functioned as a purchase or as something else. That question is fact-specific and jurisdiction-specific and no one can promise you an outcome, but the record you build now is the record a lawyer would work from later.

What reconciliation will not do for you

• It will not forgive any part of the purchased amount.
• It will not lower the total dollar cost of the deal. The cost was fixed at signing.
• It will not stop other positions, if you have taken more than one. Each contract reconciles on its own terms, if at all.
• It will not usually help retroactively beyond the period it covers.

Reconciliation is a pressure valve, not a discount. Used early and in writing, it is the difference between a slow quarter and a default. Left in the drawer, it is a paragraph you paid for and never used.

The arithmetic, worked

Illustrative only — your specified percentage is 12%. Over a defined period of 21 collection days your actual receipts were $84,000, so the funder was entitled to $10,080. It debited $520 a day, which is $10,920. The excess is $840.

Going forward, 12% of $84,000 across 21 days is $480 a day, and that is the reset figure you are asking for.

Put exactly those five numbers in the request: receipts, percentage, entitlement, amount actually debited, difference — then the new daily figure you want and the date you want it from. A servicer who has to derive that from a bundle of statements will take longer over it and is likelier to find a reason not to.

Attach the statements the arithmetic came from, and say which pages the figures are on.