Future Receivables | MCA Glossary

Definition

The anticipated revenue a business will generate from future sales, which MCA funders purchase at a discount in exchange for providing immediate capital.

Explanation

Future receivables are the legal and conceptual foundation of the merchant cash advance structure. Rather than making a loan, an MCA funder purchases a specified dollar amount of a business's future revenue — the receivables the business will generate from future card transactions or other sales — at a discount. The business receives cash today; the funder receives a larger amount collected from future sales over time. This framing is not merely semantic — it has significant legal implications. By characterizing the transaction as a purchase of future receivables rather than a loan, MCA funders have historically argued that their products are not subject to usury laws, state lending regulations, or Truth in Lending Act disclosure requirements that would apply to conventional loans. Courts and regulators have generally upheld this characterization, though the legal landscape is evolving as states impose new disclosure requirements. For borrowers, understanding the future receivables concept helps explain why MCA agreements include provisions about revenue monitoring, lockbox arrangements, and restrictions on changing payment processors — all mechanisms through which the funder collects the receivables it has purchased.

Example

An MCA funder purchases $52,000 in future receivables from a bakery for an upfront payment of $40,000. The $52,000 in future receivables will be collected through a 14% daily holdback on the bakery's card sales over an estimated 7 months.

Why It Matters

The future receivables structure shapes the MCA's legal treatment and the rights it creates. Because the funder owns the receivables, not a debt instrument, the collection mechanisms and default remedies differ from conventional loan enforcement. Understanding this structure helps you evaluate the terms of any MCA agreement and understand your rights if a dispute arises.

Frequently asked questions

What happens to future receivables if my business closes?

This is the central question in MCA enforcement disputes. If a business closes legitimately — not as a fraudulent attempt to avoid repayment — many MCA agreements and courts have held that the funder's claim to future receivables extinguishes because there are no future receivables to collect. However, funders typically respond by claiming breach of various agreement provisions — continuing operations requirements, personal guarantees, and fraud clauses — to pursue recovery anyway. Consult an attorney before closing a business with outstanding MCA obligations.