True-Up Analysis
True-up analysis is the post-funding reconciliation of merchant revenue against funded-deal projections — comparing actual repayment patterns to expected patterns and adjusting underwriting models for future deals based on learned patterns.
Why This Matters
True-up analysis is the feedback loop that improves MCA underwriting over time. Funders compare predicted versus actual repayment performance for funded deals — identifying underwriting errors and refining models for future decisions. Strong true-up programs feed back into predictive scoring models, identifying underwriting variables that predict default risk most accurately. True-up analysis also informs pricing decisions: industries or merchant profiles showing higher-than-expected default rates can be repriced to maintain target portfolio yield. Mature MCA operations run continuous true-up analysis as core risk-management practice.
Frequently Asked Questions
Frequently Asked Questions
How often should MCA funders run true-up analysis?
Continuous monitoring of in-flight deals against projections. Quarterly portfolio-level true-up analysis identifying segment-level pattern shifts. Annual comprehensive true-up review feeding into underwriting model updates and pricing adjustments. Real-time analytics platforms (Snowflake, Databricks) enable continuous monitoring without manual report generation.
What true-up insights typically improve MCA underwriting?
Industry-level default patterns (some industries underperform expectations during economic shifts), seasonal patterns (revenue cycles affect repayment timing), funded amount thresholds (very large or very small advances often show different default patterns), and stacking position effects (each additional position elevates risk).