Reconciliation

Reconciliation, in the context of alternative financing agreements, refers to a contractual provision that allows for temporary adjustments to be made to payment obligations. Based upon changes in revenue or financial performance. It serves as a mechanism to provide flexibility and support to borrowers facing temporary financial challenges.  

The Purpose of Reconciliation 

A reconciliation or re-adjustment clause aims to ensure that payment obligations are accurately aligned with a borrower’s current revenue. It relieves by enabling downward adjustments to payment amounts. Specifically, in cases of revenue decline, financial difficulties, or similar circumstances. The primary objective is to maintain a sustainable payment structure that considers the borrower’s financial capacity during challenging periods. 

Applications for Reconciliation 

The reconciliation clause operates on a case-by-case basis, typically triggered by a decline in revenues. This decline may be due to factors such as decreased sales, financial instability, or the merchant facing the possibility of bankruptcy. When the borrower experiences such circumstances, they have the right to request a downward adjustment of their weekly or periodic payments. 

Are Providers Obligated to Approve Applications? 

Upon receiving a request for adjustment, the funder or financing provider is obligated to consider the borrower’s situation. They evaluate the borrower’s financial condition, review the latest relevant documentation (e.g., revenue reports), and assess other factors before deciding whether to approve the requested adjustment. This evaluation ensures that any adjustments made are fair and reasonable.

Payment Adjustments  

If the funder approves the requested adjustment, they lower the payment amount to more accurately reflect the borrower’s current revenue situation. The purpose of the adjustment is to align the payment obligations with the borrower’s financial capacity during the challenging period. This helps the borrower manage their cash flow and reduces the strain on their business operations. 

The funder, as well as the merchant, has the right to request reconciliation. After making a payment deduction and witnessing an improvement in the merchant’s cashflow, the funder can initiate an upward adjustment that corresponds to the increase in revenue.

No Change in Payback Amount 

You can adjust the daily/weekly payment amount. However, the total payback amount, including the principal and any applicable fees or interest, remains unchanged. The reconciliation clause primarily focuses on providing temporary relief. It does this by modifying the payment amounts, while keeping the overall repayment terms intact. The borrower remains accountable for repaying the borrowed funds within the agreed-upon terms. 

Flexibility and Support When Reconciling  

The reconciliation clause in alternative financing agreements provides borrowers with flexibility and support during times of financial difficulty. It acknowledges that revenue fluctuations and unforeseen challenges can impact a borrower’s ability to meet their original payment obligations. By enabling case-by-case adjustments, the clause assists borrowers in managing their financial obligations and maintaining a sustainable path toward repayment.

Promoting Transparency and Trust 

Reconciliation plays a vital role in establishing transparency and trust between the borrower and the funder. By providing a mechanism for adjustments and considering the borrower’s current financial situation, the clause promotes open communication, fairness, and collaboration. It fosters a relationship built on mutual understanding and assists both parties in navigating challenging circumstances.