What Is a Merchant Cash Advance? Why Daily Debits and Medicaid Pay Cycles Clash

How a merchant cash advance works

A merchant cash advance gives you cash now in exchange for a bigger sum taken from the money your company collects later. The funder pays a purchase price, and the contract says it buys a set share of your future receipts until a fixed total has been delivered. Regulators call this sales-based financing: repaid as a percentage of sales or revenue, or by a fixed payment that is reconciled to that percentage (Texas Finance Code 398.001, California’s disclosure rules).

Medicaid and broker payments arrive as deposits, not card sales, so the funder collects by debiting your bank account a set amount every business day or every week. The contract then sets two numbers that are supposed to line up:

• The split rate. The share of receipts the funder bought, such as 15 percent.
• The preset payment. The fixed daily or weekly debit, which the funder estimates from your past deposits. New York’s rule gives an example: a $75 daily payment based on 15 percent of average monthly income of $15,000.

The link between the two is the true-up, or reconciliation. It lets you ask for a refund or a lower payment when the debits have taken more than the split rate of what you actually collected (California and New York disclosure rules). Without a true-up you can actually use, the debit works like a fixed loan payment. In a case settled January 22, 2025, New York’s Attorney General said the funders took fixed daily amounts over terms that often lasted 60 or 90 days, and almost no business ever qualified for the promised refunds.

Why daily debits and Medicaid pay cycles clash

Debits come out every business day. Payers pay on their own cycles: MTM Health’s standard agreement, for example, pays uncontested invoices within 30 days after online submission. See how long Medicaid takes to pay for each payer type.

Here is how that plays out for a company with three vans:

1. Your broker deposits about $18,000 twice a month, $36,000 in all.
2. A funder advances $30,000 and buys $42,000 of your future receipts, collected at $420 every business day.
3. That is about $9,100 a month, or a quarter of everything you collect, for about 100 business days, or 20 weeks.
4. Between two deposits, about 10 business days pass, so $4,200 or more leaves the account before the next $18,000 arrives.
5. If a deposit is late or short, the debits keep coming. MTM’s agreement lets it recover overpayments by offsetting future payments, and once either side gives notice to end the agreement, MTM holds payment on unpaid claims until it has audited them. A Medicaid payment suspension can hold deposits until an investigation ends.

Drivers and fuel still need paying in those weeks. Before you sign, run the daily debit through the cash reserve calculator as a fixed cost and see what is left. The cash flow guide covers safer ways to bridge slow payments.

What it costs, and the laws that make funders show you

Start with two figures from the offer: the cash that will actually land in your account, and the total you must repay. The difference is the dollar cost. The cash you receive can be less than the amount funded, because fees and the payoff of an earlier advance are taken out first. The laws in Florida, Georgia, Utah, Virginia, Connecticut, and Texas make funders show both amounts.

In the example above, you repay $42,000 for $30,000, a cost of $12,000. Because the debits start the next business day and finish in about 20 weeks, that works out to an annual percentage rate of about 187 percent, counting each debit on its date. A fee taken out of the advance pushes it higher.

Several states require funders to show these numbers in writing before you sign. Each covers deals up to a size limit:

State	What the law covers	In force since
California	Offers of $500,000 or less, with an estimated annual percentage rate	December 9, 2022
Virginia	Sales-based financing up to $500,000; funders register with the State Corporation Commission	July 1, 2022, with registration by November 1, 2022
Utah	Commercial financing up to $1,000,000; funders register with the state	January 1, 2023
New York	Offers up to $2,500,000 to businesses run from New York, with an estimated annual percentage rate	August 1, 2023
Florida	Commercial financing up to $500,000	January 1, 2024
Georgia	Commercial financing up to $500,000	January 1, 2024
Connecticut	Sales-based financing up to $250,000; funders register with the Banking Commissioner	July 1, 2024, with registration by October 1, 2024
Texas	Sales-based financing offers under $1 million; funders register with the Office of Consumer Credit Commissioner	September 1, 2025, with registration by December 31, 2026

New York’s regulation took effect February 1, 2023, and funders had six months to comply. In Florida, Georgia, and Utah, a disclosure mistake does not cancel the deal, and only the state can enforce the law. If your state is not on the list, ask for the same figures anyway. For how these laws treat factoring, see NEMT factoring.

Medicaid payments, confessions of judgment, and automatic debits

Medicaid payments. When your state Medicaid agency pays you, 42 CFR 447.10 bars payment to or through a factor, either directly or by power of attorney. The rule defines a factor as anyone who advances money for receivables you assign, sell, or transfer, for a fee or a cut of the receivables. An MCA that buys your future Medicaid receipts can fit that description, so keep the deal away from how Medicaid pays you: no assignment of Medicaid claims, no power of attorney, and no change to the bank account on your enrollment. Broker payments follow your broker contract. MTM’s agreement wants 30 days’ written notice, with proof, before any payment you assign to someone else.

Confessions of judgment. Some contracts include a signed confession that lets the funder get a judgment without a trial. In a case that led to a $20.3 million judgment, announced February 14, 2024, the FTC had alleged that a funder used such confessions to seize business and personal assets and made unauthorized withdrawals. States have pushed back:

• New York. Since August 30, 2019, a confession may be filed only in the county where the signer resides, and a business resides where it has a place of business (CPLR 3218).
• Virginia. A confession of judgment clause in a sales-based financing contract is unenforceable, and suits must be brought in Virginia courts (Code 6.2-2234).
• Connecticut. For contracts since July 1, 2024, a clause waiving your right to notice and a court hearing before the funder attaches or garnishes your assets in a lawsuit is unenforceable (Public Act 23-201, section 8).
• Texas. A contract with a confession of judgment clause is void and unenforceable (Finance Code 398.055).

Automatic debits in Texas. A funder may not set up automatic debits on your deposit account unless it holds a validly perfected, first-priority security interest in your account (Finance Code 398.056). The rule effective July 9, 2026 (7 TAC 86.313) requires that interest to cover all your accounts receivable, and handing a funder more than one prewritten check counts as an automatic debit setup. If your bank already holds the first lien on your receivables, a later funder generally cannot debit you automatically. The same rules bar a funder from telling you or your customers, such as a broker, to send it payments meant for another creditor or a factor, unless that party consents or the debt was validly assigned to the funder (7 TAC 86.312).

UCC filings, and getting one removed

A funder can file a UCC financing statement against your company, a public notice of its claim on your receivables or other assets. Filing is generally how it perfects that claim, Texas’s rule notes, so a Texas funder that wants automatic debits needs one on file first. Any later lender will see it. NEMT factoring explains how to search your state’s records.

When you finish paying, send the funder a signed written demand to end the filing. Texas’s version of UCC section 9-513, Business and Commerce Code 9.513, gives the funder 20 days after it receives your demand to file a termination statement or send you one, once nothing is owed and no more funding is promised. For receivables it bought, the same 20 days apply once your payers have paid those receivables. Check your own state’s version, then search the records again to confirm the filing is gone.

Questions to ask before you sign

1. How much cash lands in my account? Get the amount funded, every fee taken out, and any earlier balance being paid off.
2. What is the total I must repay? Subtract the cash you receive to get the dollar cost.
3. What is the debit, how often, and for how long? Multiply it out against your payers’ deposit days.
4. What is the split rate, and how do I get a true-up? Ask how to request one, what records you must send, and how fast the funder must answer.
5. What is the estimated annual percentage rate? California and New York require it. Ask for it anywhere.
6. Is there a confession of judgment, a personal guarantee, or an out-of-state court clause? Strike them where your state law lets you.
7. What does the UCC filing cover? Find out whether it reaches all receivables, your vans, or your Medicaid claims, and whether it conflicts with your bank’s lien.
8. Does anything touch how Medicaid or your broker pays you? Refuse assignments, powers of attorney, and bank account changes.
9. Is the funder registered where your state requires it? Check with the state agency in the table above.
10. What does early payoff cost? Ask whether paying early lowers the total, and get the clause number.

If the answers are hard to get, compare the offer with the bank and SBA options in NEMT business loans before you sign.