- 1Early MCA failures usually come from small, compounding decisions, not one blow-up
- 2Key traps: stretched advances, light reserves, neglected syndicators, scattered records
- 3Roitblat argues tax accounting differs from the performance accounting funders need
This is a guest opinion by David Roitblat, founder and CEO of Better Accounting Solutions, a New York City accounting firm that specializes in merchant cash advance companies.
Most MCA companies that fail do not do so dramatically, Roitblat argues. They erode. A founder looks back after eighteen months and wonders how a business with strong early momentum ended up short on liquidity and chasing syndicator trust it somehow lost. The cause is almost never one catastrophic decision, he writes, but a series of small, reasonable-seeming ones that compound into structural weakness.
He describes a young New Jersey funder who reviewed his first ten funded deals about three months in and found several merchants falling behind at nearly the same point in their terms. His underwriting notes, scattered across email threads and a spreadsheet, explained nothing. He had volume, broker flow and energy, but no process that could teach him anything.
Where early funders go wrong
Stretching advances to win deals. A merchant asks for more than bank statements justify, a broker insists the file is clean, and the funder approves a larger amount on the theory that a bigger fee covers the added risk. Repayment then slips, and across a dozen files the stretch becomes a quiet bleed on cash flow.
Thin reserves. Funders hear performance benchmarks from brokers or peers and assume their own book will match. When the first real default arrives, followed by two more, they cover obligations from operating cash and have no cushion. Roitblat says adequate reserves are an acknowledgment that early portfolios behave unpredictably, and that learning one's own patterns takes liquidity.
Neglecting syndicators. Delayed reporting, numbers that don't reconcile and unanswered questions add up. Syndicators notice which funders communicate clearly, he says, and trust once damaged rebuilds slowly.
Scattered records. Underwriting notes live in a CRM field, a manager's notebook and a lost email thread, so the portfolio can't be reconstructed when a renewal decision or payment dispute needs context. The real cost, he says, is lost insight.
Accounting, automation and communication
Roitblat says many early funders run bookkeeping that serves tax purposes but shows nothing about deal-level behavior. They know what was deposited last month but not what they earned, how much came from renewals, how cohorts age, or what they actually recovered on RTR. Tax accounting satisfies the IRS, he writes, while performance accounting informs the funder.
Manual processes work at low volume but create bottlenecks as growth speeds up: payments entered inconsistently, renewal dates slipping, late collections follow-up. Internal communication also frays as files pass between people without context and renewals go out to customers whose repayment problems were never documented.
He adds that growing funders often chase volume without asking whether it fits their identity, letting brokers steer them toward merchant types that are easy to place but poorly understood.
His prescription
Avoiding these mistakes does not require slowing down, Roitblat writes. It requires moving from improvisation to intention: price risk honestly, treat every syndicator interaction as affecting future capacity, build recordkeeping that makes decisions understandable months later, produce performance reports that reveal the truth, and automate early. Companies that choose structure rarely regret it, he says, and clarity becomes the real competitive advantage.
Source reporting: deBanked.
