How to Include MCA Repayments in a UK Business Cash-Flow Forecast

A merchant cash advance (MCA) can provide immediate working capital, but it also reduces the cash your business receives from future sales. If those collections are missing from your cash-flow forecast, your projected bank balance may look healthier than it actually will be.

For UK businesses operating restaurants, takeaways, pubs, cafés, shops, salons or e-commerce stores, understanding this distinction is particularly important. Card takings may be strong, yet automatic deductions, supplier bills, payroll and VAT obligations can leave substantially less cash available than expected.

The simplest way to include MCA repayments in a business cash-flow forecast is to calculate the contractual collection percentage against eligible sales, record the resulting deduction when it affects your bank balance and track the remaining contractual amount separately.

Unlike a conventional business loan with scheduled instalments, a traditional MCA generally collects a percentage of qualifying sales. Higher sales usually mean larger collections, while lower sales generally mean smaller collections. However, some agreements contain minimum-payment requirements or other conditions.

TheBritish Business Bank's guidance on merchant cash advancesexplains that these deductions can affect everyday business cash flow and that repayment terms vary with sales performance.

This guide explains how to forecast MCA collections accurately, calculate their effect on working capital, account for VAT and card-processing charges, and assess whether your business can remain financially stable throughout the arrangement.

What Is an MCA Repayment in a Cash-Flow Forecast?

An MCA repayment, sometimes called a remittance, collection or holdback, is the amount of eligible business revenue allocated to the funding provider under the agreement.

Many UK merchant cash advances are structured as purchases of future business receivables rather than conventional loans.

The business receives an upfront amount, and the provider becomes entitled to collect an agreed amount from future sales.

Three figures are particularly important:

Advance amount: The money the business receives upfront.

Total contractual collection: The amount the provider is entitled to collect under the agreement.

Collection percentage: The share of eligible sales allocated towards satisfying the contractual amount.

For example, a business receiving a hypothetical £12,000 advance might agree to a total collection amount of £14,400, with 12% of qualifying sales allocated towards the advance.

In this example, the fixed funding cost would be £2,400, and the total collection multiplier would be 1.20.

These figures are purely illustrative assumptions, not current provider pricing or an offer of finance.

If the business processes £8,000 in qualifying sales during a week, the expected MCA collection would be:

£8,000 × 12% = £960

If eligible sales fall to £4,000:

£4,000 × 12% = £480

The percentage remains constant, but the cash collected changes.

Your cash-flow forecast must reflect those changes.

Importantly, the total contractual amount may remain unchanged even when sales fall, meaning the collection period can become longer.

Why MCA Repayments Need Their Own Cash-Flow Forecast Line

A cash-flow forecast estimates the money entering and leaving your business over a defined period.

It differs from a profit-and-loss forecast, which measures income and expenses according to the relevant accounting basis.

TheBritish Business Bank's cash-flow forecasting guideemphasises that expected receipts should be recorded when money reaches the business, rather than simply when a sale is made or an invoice is issued.

This distinction is particularly important for an MCA.

A business may report £30,000 in monthly card sales, but the full amount may never reach its operating bank account because the payment processor deducts transaction charges and the MCA provider collects its contractual percentage.

Gross Sales Are Not the Same as Available Cash

Consider a hypothetical UK café with:

Gross qualifying card sales: £30,000

Illustrative MCA collection percentage: 12%

Illustrative card-processing charge: 2%

The expected MCA collection is:

£30,000 × 12% = £3,600

The assumed card-processing charge is:

£30,000 × 2% = £600

The cash remaining after these two deductions is:

£30,000 − £3,600 − £600 = £25,800

These calculations assume that the MCA and processing percentages apply to the same gross sales base, with no other adjustments.

The £25,800 is not profit. It is the amount remaining from those card transactions before suppliers, wages, rent, VAT payments and other business expenses.

The assumed 2% processing charge and 12% MCA collection percentage are hypothetical, not representations of current UK provider rates.

Two Collection Methods That Must Be Forecast Differently

UK MCA providers do not all collect money in the same way.

Method 1: Deduction from card settlements. The MCA amount is withheld before the processor pays the remaining card receipts into the business bank account.

Method 2: Separate bank-account collection. Sales receipts are settled through the normal payment process, and the MCA amount is separately debited from the business bank account.

For example,Square Cash Advance UKdescribes withholding a percentage of gross eligible card sales, including VAT and tips, in addition to normal payment-processing fees.

By comparison,Shopify Capital UKdescribes remittances calculated from defined gross daily sales and automatically debited from the business bank account. Its UK product is offered through YouLend.

Both arrangements reduce available cash, but they can appear differently on bank statements.

Never subtract an MCA collection twice. If the amount has already been withheld from the card settlement used in your forecast, do not record the same amount again as a separate bank-account payment.

How to Build a 13-Week Cash-Flow Forecast With MCA Repayments

A rolling 13-week forecast is a practical method for monitoring near-term business liquidity.

It allows you to identify which weeks may contain payroll commitments, supplier bills, rent payments, VAT liabilities and other important outgoings.

It also helps you calculate how variable MCA collections affect the amount of money left in the bank.

UK government guidance recommends preparing a broader 12-month cash-flow forecast when planning for funding. A 13-week forecast can complement that longer-term view by providing greater detail about immediate liquidity.

Source:Business.gov.uk — Preparing for Funding Applications.

Step 1: Start With Your Actual Available Cash

Begin with the amount of unrestricted cash available to your business.

This may include cleared balances held in operating accounts that can genuinely be used for business expenses.

Do not automatically include:

Unapproved loan applications.

Customer invoices that have not been paid.

Expected card settlements that have not yet cleared.

Overdraft capacity that is not currently available.

Cash held for restricted purposes.

Forecast sales that have not occurred.

For example, a business might have £6,000 in its operating account but owe £2,000 in immediate supplier payments.

Its forecast should reflect the full £6,000 opening bank balance and the £2,000 outgoing payment on the date it is due, rather than overlooking that commitment.

The opening cash figure should reconcile with your bank records.

Step 2: Forecast Eligible Card Sales Separately From Other Revenue

The next step is to forecast the sales against which the MCA provider calculates its collections.

This is not necessarily identical to total business turnover.

A restaurant might generate revenue through card terminals, online ordering platforms and cash payments.

An e-commerce business may receive payments through multiple channels, including integrated checkouts, marketplaces and other supported methods.

Check the agreement's definition of eligible sales.

For example, Shopify Capital UK states that its gross daily sales calculation can include completed orders across its supported sales channels, regardless of the order's payment method and even where an order is subsequently refunded or cancelled.

That differs from arrangements based on qualifying card transactions through a particular processor.

The forecast must therefore use the provider's actual contractual definition, not a generic assumption that every MCA uses the same card-sales base.

To estimate future eligible sales, review historical transaction records and adjust for:

Day-of-week and seasonal trading patterns.

Scheduled holidays or closures.

Expected customer demand.

Refund and chargeback patterns.

Promotional activity.

Changes in payment-processing arrangements.

Expected changes in trading hours or capacity.

Use realistic assumptions rather than automatically extrapolating your strongest month.

Step 3: Calculate the Expected MCA Collection

For a straightforward percentage-of-sales arrangement:

Forecast MCA collection = Eligible sales × Contractual collection percentage

Suppose your agreement specifies a 10% collection percentage.

If forecast eligible sales are £15,000 for the week:

£15,000 × 10% = £1,500

If eligible sales are £9,000:

£9,000 × 10% = £900

The formula works for daily, weekly or monthly calculations, provided the applicable sales definition and timing are consistent.

However, the actual amount collected should not exceed the remaining contractual balance under a straightforward fully satisfied arrangement. Your model should also incorporate any additional obligations, adjustments or minimums in the signed agreement.

Step 4: Account for When the Money Is Actually Collected

This is where a basic sales forecast becomes a genuine cash-flow forecast.

If card sales occur on a Friday but the payment processor settles the money on Monday, the business may not have access to those funds until the following week.

If the MCA provider uses a separate bank debit, the debit may occur on a different date from the corresponding card settlement.

Consequently, you should distinguish between:

Transaction date: When the qualifying sale occurs.

Settlement date: When the payment processor transfers the relevant funds.

MCA collection date: When the provider actually withholds or debits the agreed amount.

The three dates may not be identical.

A business with substantial weekend trading should be particularly careful when forecasting Monday payroll or supplier payments.

Where timing could create a shortage, use a daily cash-flow forecast for the relevant period rather than relying only on weekly totals.

Step 5: Add the Advance as a Separate Financing Cash Receipt

If you are forecasting a proposed new MCA, include the actual net funding expected to reach the business bank account.

Do not add the headline advance amount without accounting for any contractual deductions, such as settlement of an existing advance.

For management cash-flow purposes, show the receipt separately from ordinary customer sales.

For example:

Net new MCA funding received: £12,000

Forecast customer card receipts: £8,000

Other customer receipts: £1,000

This separates financing proceeds from trading activity.

It also prevents the model from incorrectly treating the advance as evidence that the business's underlying sales have increased.

The statutory accounting and tax treatment of a receivables-purchase arrangement may require separate analysis by an accountant.

Step 6: Include All Normal Business Cash Outgoings

Next, include the expenses and commitments that the business must continue meeting while the MCA is active.

For most UK small businesses, these may include:

Stock and supplier payments.

Payroll and employer costs.

Commercial rent and service charges.

Utilities and insurance.

Card-processing charges.

Marketing and advertising.

Business loan or asset-finance instalments.

VAT, PAYE and other applicable taxes.

Essential repairs and capital expenditure.

Other contractual financing payments.

Enter each outgoing when payment is expected to leave the bank account.

A monthly rent payment, for example, should be recorded in the relevant week rather than divided equally across four weeks if your purpose is to identify actual liquidity shortages.

Step 7: Calculate Weekly Closing Cash and the Remaining MCA Balance

For each week, calculate:

Closing cash = Opening cash + Actual cash received − Actual cash paid

The next week's opening cash becomes the previous week's closing cash.

Separately, track:

Remaining MCA balance = Opening contractual balance − Collections made during the period

This remaining amount is the uncollected portion of the contractual remittance, not necessarily a conventional loan principal balance.

Keeping the figures separate allows you to answer two different questions:

Will the business have enough cash to meet its immediate obligations?

How much of the MCA contractual amount remains to be collected?

Both matter.

Worked Example: A 13-Week Cash-Flow Forecast With an MCA

Consider a hypothetical independent UK retailer preparing a rolling 13-week cash-flow forecast.

The business receives most of its revenue through card payments and is considering an MCA to support stock purchases and operating expenses.

The example below uses entirely illustrative financing and operating assumptions. It is not based on an actual provider offer.

Illustrative Financing Terms

Opening bank balance: £2,000

Net MCA funding received in Week 1: £12,000

Total contractual amount to be collected: £14,400

Fixed funding cost: £2,400

MCA collection percentage: 12% of eligible card sales

Assumed card-processing charge: 2% of gross card sales

For simplicity, the example assumes that all eligible card transactions settle during the same week, MCA collections are deducted from card settlements, and there are no additional charges or minimum-payment requirements.

The forecasted operating payments exclude the separately identified MCA collections, processing charges and VAT payment.

Week 1: Funding Arrives and Sales Are Strong

The retailer expects:

Gross card sales: £8,000

Other customer receipts: £1,000

MCA collection: £960

Card-processing charges: £160

Operating cash payments: £7,000

New MCA funding received: £12,000

The closing cash calculation is:

£2,000 + £8,000 + £1,000 + £12,000 − £960 − £160 − £7,000

Forecast Week 1 closing cash: £14,880

The new financing significantly increases available liquidity.

However, the business also begins allocating part of its future sales to the funding provider.

Week 2: Sales Remain Consistent

Assume:

Gross card sales: £8,000

Other customer receipts: £1,000

MCA collection: £960

Card-processing charges: £160

Operating cash payments: £7,000

The business generates a positive net cash movement of £880.

Forecast Week 2 closing cash: £15,760

Week 3: Card Sales Decline

Now assume eligible card sales fall by 50%.

The business expects:

Gross card sales: £4,000

Other customer receipts: £500

MCA collection: £480

Card-processing charges: £80

Operating cash payments: £6,000

The net cash movement is:

£4,000 + £500 − £480 − £80 − £6,000 = −£2,060

Forecast Week 3 closing cash: £13,700

Although the MCA collection falls from £960 to £480, the business experiences a cash-flow deficit because revenue has fallen more sharply than operating payments.

This illustrates an important principle:

Lower MCA collections do not necessarily mean that cash flow improves.

The provider collects less because sales are weaker, but the business also receives less money.

Week 4: A VAT Payment Becomes Due

Assume the weaker sales continue.

The business forecasts:

Gross card sales: £4,000

Other customer receipts: £500

MCA collection: £480

Card-processing charges: £80

Operating cash payments: £6,000

VAT payment relating to a previous accounting period: £3,500

The total negative cash movement is £5,560.

Forecast Week 4 closing cash: £8,140

The retailer still has cash available, but its balance has fallen substantially from Week 2.

At the end of Week 4, total MCA collections are:

£960 + £960 + £480 + £480 = £2,880

The remaining contractual amount is:

£14,400 − £2,880 = £11,520

The retailer has received the immediate benefit of the advance, but most of the contracted collection amount remains outstanding.

What Would Happen Without the MCA?

Using the same sales, processing charges, operating expenses and VAT obligations, but removing the £12,000 funding receipt and all MCA collections, the business would have a projected Week 4 closing cash balance of negative £980.

In this illustration, the MCA therefore improves Week 4 liquidity by £9,120.

That improvement equals the £12,000 funding received minus £2,880 already collected.

However, it does not mean the business has generated an additional £9,120 of operating profit.

The advance has brought forward cash in exchange for future collections.

The business must still determine whether subsequent sales can support the remaining contractual obligations and ordinary operating costs.

Extend the Forecast Through Week 13

The same method should continue for the remaining nine weeks.

To illustrate how future sales affect the outstanding MCA balance, consider two hypothetical scenarios.

Scenario A: Eligible sales recover to £8,000 per week.

At a 12% collection percentage:

£8,000 × 12% = £960 per week

Over nine weeks, collections would total £8,640.

The projected contractual amount still outstanding at the end of Week 13 would be:

£11,520 − £8,640 = £2,880

Scenario B: Eligible sales remain at £4,000 per week.

At the same collection percentage:

£4,000 × 12% = £480 per week

Over nine weeks, collections would total £4,320.

The projected contractual amount still outstanding at the end of Week 13 would be:

£11,520 − £4,320 = £7,200

These projections assume consistent eligible sales, no additional contractual charges, no minimum-payment obligations and no other adjustments.

They calculate the remaining MCA obligation only. They do not establish the retailer's closing bank balance, which would also depend on nine further weeks of receipts and expenses.

The key lesson is that the remaining MCA obligation and the available cash balance must be forecast independently.

How to Account for VAT When Forecasting MCA Collections

VAT can create a significant cash-flow risk for UK businesses using merchant cash advances.

Some MCA providers calculate collections against gross transactions, including VAT.

For example, Square's UK Cash Advance documentation expressly states that its collection percentage applies to gross card sales, including VAT and tips.

Consequently, a business may have part of its VAT-inclusive receipts allocated to the MCA provider before it pays the relevant VAT liability to HM Revenue and Customs.

Example: An MCA Collection From VAT-Inclusive Sales

Suppose a VAT-registered business generates £8,000 in qualifying gross card sales.

For this illustration only, assume all sales are subject to the standard 20% UK VAT rate.

The output VAT included within those gross sales would be:

£8,000 × 20 ÷ 120 = £1,333.33

If the MCA provider collects an illustrative 12% of gross sales:

£8,000 × 12% = £960

Assuming card-processing charges of £160, the amount remaining from those transactions is:

£8,000 − £960 − £160 = £6,880

However, the business must still account for the VAT arising from its taxable sales.

The actual amount payable to HMRC will depend on the applicable VAT scheme, allowable input tax, adjustments and other transactions.

The £1,333.33 is illustrative output VAT, not necessarily the business's final VAT liability.

Furthermore, not all UK supplies are standard-rated. Some are reduced-rated, zero-rated or exempt.

Source:GOV.UK — How Much VAT You Must Charge.

When Should VAT Be Included in the Forecast?

For businesses using standard quarterly VAT returns, the filing and payment deadline is usually one calendar month and seven days after the end of the accounting period.

Different deadlines can apply under other VAT arrangements.

Source:HMRC — Sending a VAT Return.

Your cash-flow forecast should include the expected VAT payment in the week when it must actually be paid.

It can also be useful to maintain a separate VAT reserve or provision in your management forecast, so cash collected on behalf of HMRC is not treated as freely available working capital.

What if Your Business Uses the VAT Cash Accounting Scheme?

Under the VAT Cash Accounting Scheme, eligible businesses generally account for output VAT when customers pay rather than when invoices are issued.

However, HMRC's rules contain specific timing provisions.

For card payments, the relevant payment date can be when the sales voucher is made out, rather than when the payment processor subsequently settles the transaction.

HMRC also explains that payments received net of certain deductions must be accounted for using the full taxable value of the underlying supply.

This matters when reconciling card transactions, merchant settlements and MCA collections.

Source:HMRC — VAT Cash Accounting Scheme, Notice 731.

A bookkeeper or accountant should confirm how the relevant VAT rules apply to your business's particular arrangements.

How to Model MCA Repayments When Sales Rise or Fall

A useful cash-flow forecast should not assume that eligible sales will remain consistent.

For businesses with seasonal demand or unpredictable trading, a single optimistic forecast can be misleading.

Prepare at least three scenarios.

Base Case: Trading Continues as Expected

The base case should reflect the business's most reasonable estimate of future sales and costs.

Use historical payment-processing records, current order activity and realistic seasonality assumptions.

Calculate MCA collections from the eligible sales forecast.

This scenario represents your normal operating expectation, not a guaranteed outcome.

Downside Case: Sales Are Weaker Than Expected

Recalculate eligible sales using a reasonably adverse scenario, such as a hypothetical 20% or 30% reduction.

These percentages are stress-testing assumptions, not lender requirements or economic predictions.

Reduce MCA collections in line with the relevant contract, but do not automatically reduce fixed costs.

Rent, insurance, contracted services and some payroll commitments may remain payable even when sales decline.

The question is whether the business can still pay its essential expenses without exhausting available cash.

Severe Downside Case: Sales Stop Temporarily

Test a period when qualifying sales fall to zero.

Under a straightforward percentage-of-actual-sales arrangement, ordinary percentage-based collections may also fall to zero.

However, the business may continue paying rent, staff, utilities and other commitments.

The contract may also contain minimum-payment requirements, default provisions or restrictions connected with business closure and payment processing.

A zero-sales forecast should therefore not automatically assume that every obligation under the MCA disappears.

Do UK Merchant Cash Advances Have Minimum Monthly Payments?

This is an essential contractual consideration.

Different UK providers publish different collection arrangements.

Square Cash Advance UKstates that its product has no fixed monthly payments, minimum payments or specified term length. Its collections depend on eligible sales.

By contrast,Barclaycard Business Cash Advance, provided through Liberis, states that businesses are expected to operate in a way that ensures the partner receives a minimum monthly amount equivalent to 3% of the total amount owed, subject to contractual terms.

That published expectation is not necessarily the same as a fixed monthly direct debit. The actual agreement determines what happens if the expected amount is not collected.

How to Reflect Minimums in Your Forecast

Where your signed agreement includes a minimum collection or separate payment obligation:

Calculate the percentage-based collections expected from sales.

Identify the minimum amount or performance condition specified in the contract.

Determine whether a shortfall creates an additional cash payment, a contractual breach or another consequence.

Include any additional payment on the date it would actually become due.

Consider obtaining legal advice if the provision is unclear or materially affects your financial exposure.

Do not impose a fictional minimum collection on an MCA that has no such requirement.

Equally, do not assume that every MCA becomes payment-free when sales weaken.

How to Forecast MCA Repayments for Seasonal UK Businesses

Seasonality can materially affect the accuracy of MCA cash-flow projections.

A restaurant, seaside café, hotel, independent retailer or e-commerce store may experience substantial changes in transaction volume throughout the year.

The forecast should reflect those differences.

Restaurants, Cafés and Takeaways

Forecast card sales using recent comparable weeks, adjusted for known changes in trading conditions.

Account for weekend trading, staffing costs, supplier payments, seasonal footfall and periods of closure.

Food and beverage businesses may have particularly complicated VAT treatment because different supplies can be subject to different rules.

Pubs and Hospitality Businesses

Include seasonal trading patterns, events, staff costs, stock purchases and fixed property expenses.

A busy trading week may produce larger MCA collections, but the business may also need additional cash for inventory and payroll.

Independent Retailers

Consider promotional events, seasonal stock purchases, supplier credit terms and inventory remaining unsold.

Stock paid for before it is sold can create a financing gap that is not apparent from sales figures alone.

E-Commerce Businesses

Model order volumes, payment-processing settlement dates, advertising spend, fulfilment costs, refunds and chargebacks.

Check whether your MCA agreement calculates collections from gross sales before subsequent refunds.

For example, Shopify Capital's UK documentation explains that completed orders can form part of its daily sales calculation even if they are subsequently refunded or cancelled.

This can create a difference between the MCA calculation and the final cash benefit of a particular order.

The same assumptions should not be applied to every provider.

How to Track the Remaining MCA Balance

A cash-flow forecast should include a separate running record of the amount still to be collected under the MCA agreement.

This helps the business understand how long collections may continue and when the associated cash-flow pressure might end.

For each forecast period, record:

Opening contractual collection balance.

MCA collections forecast for the period.

Additional settlement payments, if any.

Adjustments expressly provided for by the agreement.

Closing contractual collection balance.

For example, a business may begin a week with £9,000 remaining under its MCA.

If £700 is collected during that week, and there are no other adjustments:

£9,000 − £700 = £8,300 remaining

The following week should begin with £8,300.

Continue until the full amount has been satisfied.

Can You Estimate When the MCA Will Finish?

You can estimate the collection period using forecast eligible sales, but the result is not a guaranteed maturity date.

For example, assume:

Remaining contractual amount: £9,000

Forecast eligible weekly sales: £6,000

Illustrative collection percentage: 10%

Expected weekly collections would be:

£6,000 × 10% = £600

The estimated remaining collection period would be:

£9,000 ÷ £600 = 15 weeks

This calculation assumes constant eligible sales, no additional contractual conditions and no other changes.

If sales fall, the period could lengthen.

If sales increase, collections could finish sooner.

The forecast should be revised whenever the business's actual performance differs materially from expectations.

How to Forecast Two Merchant Cash Advances at the Same Time

Some businesses may have more than one financing arrangement collecting from revenue.

However, a second MCA is not automatically permitted.

Existing agreements may restrict additional finance, overlapping assignments of receivables or changes to payment-processing arrangements.

Before forecasting simultaneous collections, verify that the proposed arrangements are contractually permitted and operationally compatible.

Illustrative Example of Combined Collections

Suppose a business has two permitted arrangements:

MCA A collects 10% of a defined sales base.

MCA B collects 8% of the same sales base.

Assuming both percentages apply to the same £20,000 in qualifying monthly transactions:

MCA A collection:

£20,000 × 10% = £2,000

MCA B collection:

£20,000 × 8% = £1,600

Combined collections:

£2,000 + £1,600 = £3,600

That represents 18% of the assumed sales base.

The business would retain £16,400 from those transactions before processing charges, VAT payments and operating expenses.

This example is purely illustrative and does not imply that overlapping MCA arrangements are always available or allowed.

If the products use different eligible sales definitions, collection mechanisms or payment schedules, model them separately.

How Often Should You Update an MCA Cash-Flow Forecast?

A forecast becomes less useful if it is prepared once and never reviewed.

For businesses with frequent card transactions, a weekly review is a practical starting point.

Where cash is tight, daily monitoring may be necessary.

TheBritish Business Bank's reforecasting guidancerecommends updating forecasts when business circumstances change and avoiding overly optimistic assumptions.

A Practical Weekly Review

At the end of each week:

Reconcile actual sales against forecast sales.

Compare actual merchant settlements with expected deposits.

Verify the MCA collections recorded by the provider.

Update the remaining contractual collection amount.

Replace forecast receipts and payments with actual bank transactions.

Revise future sales and expense assumptions.

Add a new week so the forecast continues to cover the next 13 weeks.

Pay particular attention to the earliest projected cash shortage.

A business can have a positive balance at the end of a month but insufficient cash on a particular day to cover payroll or a tax payment.

Common Mistakes When Including MCA Repayments in a Forecast

1. Counting Gross Card Sales as Cash Available

Gross sales may include money withheld for MCA collections, card-processing charges and other adjustments.

Use expected actual settlements when calculating available bank cash.

2. Deducting the MCA Twice

If your card settlement forecast already reflects an MCA holdback, subtracting the same amount again will understate your bank balance.

Reconcile your provider's collection mechanism with the cash-flow model.

3. Ignoring VAT

A business may receive card settlements net of MCA collections but still have VAT obligations based on the underlying taxable supplies.

Forecast HMRC payments separately.

4. Assuming Collections Are Fixed

Traditional percentage-of-sales MCA collections fluctuate with eligible sales.

Use the contractual calculation instead of dividing the total amount by an arbitrary number of months.

5. Assuming All MCAs Have No Minimum Payments

Some agreements include minimum-payment or trading-performance conditions.

Review the contract before making this assumption.

6. Treating MCA Funding as Sales Revenue

The initial cash receipt increases liquidity but does not represent additional customer demand.

Keep financing proceeds separate from ordinary trading receipts in the management forecast.

7. Ignoring Payment Settlement Delays

Card transactions may settle after the sale date.

This can matter when large expenses fall due before settlement funds reach the bank.

8. Forecasting Only the First Few Weeks

An MCA may improve the immediate cash position while creating continued collection obligations.

Extend the forecast beyond the first funding period and track the remaining contractual amount.

9. Assuming Early Settlement Reduces the Fixed Funding Cost

Certain MCA agreements establish a fixed collection amount that does not decrease when the arrangement is settled early.

Shopify Capital UK, for example, states that remitting the full remaining balance early does not reduce the total agreed financing cost.

Always use your agreement's settlement terms.

10. Failing to Compare the Forecast With Other Funding Options

A merchant cash advance is not automatically the most appropriate solution to a cash-flow shortage.

A business with predictable receipts may prefer a financing product with scheduled payments.

Other businesses may benefit from overdrafts, supplier credit, invoice finance or longer-term business loans, where available and appropriate.

Compare actual contractual costs and cash-flow obligations.

How to Tell Whether Your Business Can Afford an MCA

A strong cash-flow forecast should help you evaluate whether the financing is commercially sustainable.

Before accepting an MCA, compare the business's position with and without the proposed financing.

Test 1: Does the MCA Solve a Temporary Cash Shortage?

An MCA may be appropriate where a business has a clearly identified timing gap between payments and expected future sales.

For example, it could help purchase stock that is expected to generate sufficient cash within a reasonable period.

However, if the business consistently spends more than it generates, additional financing may postpone rather than solve its underlying financial problems.

Test 2: Is There Enough Cash Left After Collections?

Calculate the cash remaining after MCA deductions, processing costs and essential operating commitments.

The objective is not simply to determine whether the MCA provider can collect its share of sales.

The business must also retain sufficient liquidity to operate.

Test 3: Can the Business Manage a Downturn?

Review the downside and severe-downside scenarios.

Ask whether the business could still cover payroll, suppliers, rent and taxes if actual sales were materially weaker than expected.

Test 4: Does the Business Maintain an Adequate Cash Buffer?

Choose a cash reserve target based on the business's actual operating commitments and risks.

There is no single reserve amount that guarantees an MCA is affordable.

For a business with substantial weekly payroll or essential supplier payments, a small positive bank balance may be insufficient.

Test 5: What Happens After the MCA Has Been Fully Collected?

Consider whether the business's operating cash flow is expected to improve after collections finish.

Also assess whether the business is likely to need another advance immediately.

Regularly refinancing a funding shortfall without addressing the underlying causes can create financial pressure.

The purpose of the forecast is to identify those risks before they become urgent.

Frequently Asked Questions

How Do You Calculate MCA Repayments in a UK Cash-Flow Forecast?

Multiply forecast eligible sales by the contractual collection percentage.

For example, if the agreed percentage is 10% and eligible weekly sales are £10,000, the expected collection would be £1,000, assuming no minimums, adjustments or other conditions.

Record the deduction according to how and when it actually affects the business bank account.

Should MCA Repayments Be Included as a Business Expense?

They must be reflected as reductions in available cash within a cash-flow forecast.

However, their classification in statutory accounts and tax calculations can differ from the classification of conventional loan principal and interest.

The accounting treatment depends on the substance of the arrangement and should be confirmed with a qualified accountant.

How Do I Forecast MCA Repayments if Sales Are Unpredictable?

Use historical sales records, seasonal information and reasonable projections to produce base, downside and severe-downside scenarios.

Update the forecast regularly using actual transaction data.

The objective is to understand a range of possible cash outcomes rather than predict sales with certainty.

What Happens to MCA Repayments if Sales Fall?

Percentage-based collections generally decrease when the relevant eligible sales decline.

However, the total contractual collection amount may remain unchanged, and the collection period may become longer.

Some agreements also contain additional payment or trading requirements.

Should VAT Be Calculated Before or After MCA Deductions?

MCA deductions do not automatically reduce the taxable value of underlying customer sales.

VAT calculations depend on the actual taxable supplies and the business's applicable VAT accounting rules.

For businesses using gross-sales-based MCA collection arrangements, it is particularly important not to confuse lower net card settlements with lower VAT obligations.

Can I Use a Spreadsheet to Forecast MCA Repayments?

Yes. A spreadsheet is a practical option for many businesses.

Useful fields include opening cash, forecast eligible sales, card settlement receipts, processing charges, MCA deductions, other receipts, operating payments, tax payments, closing cash and the remaining MCA contractual amount.

Make sure the calculations reflect your actual provider's collection method.

Is a 13-Week Cash-Flow Forecast Enough?

A 13-week forecast is useful for near-term liquidity management, but it should not automatically replace longer-term planning.

A broader 12-month forecast may be important for business budgeting, seasonal operations and financing decisions.

Use both where appropriate.

Is an MCA Better for Cash Flow Than a Fixed-Repayment Business Loan?

Not necessarily.

An MCA may offer collections that respond to sales, while a conventional loan may provide predictable scheduled payments.

The more appropriate option depends on total cost, contract terms, revenue stability and the business's ability to meet its obligations.

For a fuller comparison, seeMerchant Cash Advance vs Business Loan UK.

Final Thoughts: Forecast the Cash You Keep, Not Just the Sales You Make

Merchant cash advances can give eligible UK businesses access to working capital, but they change how much cash remains available from future sales.

A useful cash-flow forecast should capture both sides of the transaction: the initial funding received and the collections that follow.

The most important principles are straightforward:

Forecast eligible sales using realistic assumptions.

Apply the actual contractual collection percentage.

Account for whether collections are withheld from settlements or debited separately.

Include payment-processing charges, VAT, payroll and other essential expenses.

Track the remaining contractual amount separately from the bank balance.

Test what happens when sales are weaker than expected.

Update the forecast as new financial information becomes available.

The most useful question is not simply how much MCA funding your business can obtain. It is how much cash your business will retain after the funding has been received and the associated collections begin.

A carefully prepared forecast can help you make that decision with greater confidence, identify potential shortages early and avoid relying on sales figures that overstate the cash available to operate your business.

Explore Your Business Financing Options

If your business is evaluating a merchant cash advance or another working-capital arrangement, understanding its effect on cash flow should form part of the financing decision.

Read our related guide toMerchant Cash Advances for Cash Flow in the UK.

You can alsocontact Mehmi Financial Groupto discuss your commercial financing requirements and enquire whether a suitable service is available for your business.

Mehmi Financial Group is a commercial financing brokerage, not a direct lender. Financing availability depends on location, provider participation, individual eligibility, applicable legal requirements and final underwriting. No financing approval, rate, amount or funding date is guaranteed.

This article is for general educational purposes and does not constitute legal, tax, accounting or personalised financial advice. Businesses should review their own MCA agreements and seek qualified professional advice where appropriate.