Notice of Assignment: How Your Customers Pay When You Factor
When you factor an invoice, your customer receives a Notice of Assignment with new payment instructions. Learn what the notice says, why UCC 9-406 makes it binding, and how it ends.
- ✓One letter per customer. Your customer gets new remittance instructions once, at the start.
- ✓Legally binding. Under UCC 9-406, your customer must pay as the notice directs.
- ✓Reversible. A letter of release sends payments back to you when the account closes.
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Message a SpecialistExecutive Summary: Notice of Assignment
What it is: A Notice of Assignment is the letter that tells your customer an invoice was sold to a factor and that payment must go to the factor, usually to a lockbox.
The numbers: After same-day approval and a 2–5 day closing, your customers receive the notice and you receive 70%–90% of each approved invoice. The factoring fee runs 1%–3%, and the reserve, less the fee, comes back to you when your customer pays.
Key constraints: A customer that pays you after receiving the notice has not discharged the invoice under UCC 9-406, and you must turn that payment over. Contract clauses that ban assignment generally do not stop the sale of a receivable.
The Fast Facts on Notice of Assignment
What is a Notice of Assignment?
A Notice of Assignment is defined as the letter telling your customer that an invoice was sold to a factor and that payment must go to the factor. It names the account, gives new remittance instructions, and stays in force until a letter of release replaces it.
Will my customers know I am factoring?
The short answer is yes: your customers know when you factor their invoices. Notification factoring is the standard arrangement with IFXI's lending partner, so your customers receive a Notice of Assignment and pay a lockbox. Most commercial customers already pay other suppliers this way, and their payment terms and due dates stay the same.
What does UCC 9-406 say?
The short answer is that once your customer receives notice of an assignment, it can discharge the invoice only by paying the factor. UCC 9-406 also limits contract terms that forbid assigning a receivable, so most anti-assignment clauses do not block factoring.
What the notice says and who receives it
Account debtor
The account debtor is your customer, the business that owes the invoice. It receives the notice and changes the remittance address in its payables system.
Remittance instructions
The notice names the lockbox where payment now goes. Your customer keeps paying on the same terms and due dates.
Your role as client
You keep invoicing your customer as before. Each invoice carries the new remittance address, and you submit copies for each advance under invoice factoring.
Notification vs. non-notification factoring
| Feature | Notification factoring | Non-notification factoring |
|---|---|---|
| Customer told of the sale? | Yes, by Notice of Assignment | No |
| Who the customer pays | A lockbox | Your business, which forwards the payment |
| UCC 9-406 discharge | Only payment to the factor discharges the invoice | Payment to you discharges it until notice arrives |
| Typical cost | 1%–3% fee range | Variable |
| Availability | Standard arrangement | Confirm before you apply |
How a Letter of Release ends the notice
When it goes out
A letter of release follows payoff, either when you stop factoring or when a factoring buyout moves your account.
What it tells your customer
The factor no longer owns your invoices, and payments go back to you or to a new factor.
What follows on record
The UCC-1 filed at closing ends with a UCC-3 termination. See each stage on how factoring works.
Notice of Assignment vs. Letter of Release vs. UCC-1
| Feature | Notice of Assignment | Letter of Release | UCC-1 Financing Statement |
|---|---|---|---|
| Who receives it | Your customer | Your customer | The public record |
| When it appears | At closing on a new account | At payoff | At closing on a new account |
| What it changes | Where your customer pays | Sends payments back to you | Shows other lenders the factor's interest |
| Legal basis | UCC 9-406 | Ends the 9-406 notice | UCC Article 9 |
| How it ends | Letter of release | Final document | UCC-3 termination |
Funding scenarios for Notices of Assignment
Customer paid the old address
- Funding Amount
- $76,500
- Industry
- Packaging manufacturing
- Customer Type
- Manufacturer billing a grocery distributor
- Funding Type
- Invoice factoring
- Invoice Terms
- Net-45
- Advance Rate
- 85%
Two weeks after the notice, the customer's payables team mailed a check to the owner's office.
The SolutionThe owner endorsed the check over to the lockbox, and the customer updated its vendor record.
ResultThe owner received $76,500 up front; the $13,500 reserve, less the fee, followed once the $90,000 payment cleared.
Anti-assignment clause in a supply contract
- Funding Amount
- $160,000
- Industry
- Metal fabrication
- Customer Type
- Fabricator supplying an automotive plant
- Funding Type
- Invoice factoring
- Invoice Terms
- Net-60
- Advance Rate
- 80%
The owner worried that a clause in the customer contract barred assigning receivables.
The SolutionThe owner's counsel pointed to UCC 9-406, which limits clauses that forbid selling a receivable, and the customer accepted the notice.
ResultThe owner received $160,000 on $200,000 of invoices.
Release after a bank refinance
- Funding Amount
- $63,000
- Industry
- Marine parts distribution
- Customer Type
- Distributor selling to boat dealers
- Funding Type
- Invoice factoring
- Invoice Terms
- Net-30
- Advance Rate
- 90%
A new bank line replaced factoring, and customers needed to start paying the business again.
The SolutionAfter payoff, the factor sent each customer a letter of release and filed a UCC-3 termination.
ResultThe final $70,000 invoice had advanced at 90% ($63,000), and every customer switched remittance within one billing cycle.
Who the Notices of Assignment guide is for
Manufacturers with large customers
Your customers have formal vendor setups and you want to know what their payables team will receive.
Distributors with many accounts
You bill dozens of customers and need each one to switch remittance cleanly.
Owners leaving factoring
You are refinancing and need customers to pay you again after a letter of release.
Where IFXI arranges invoice factoring
Texas, Florida, New York, Illinois, Georgia, Ohio, and Pennsylvania.
Frequently asked questions about Notices of Assignment
Do I have to send the Notice of Assignment myself?
The short answer is no: the lending partner sends it to each customer you factor after the 2–5 day closing. You can tell major customers beforehand so the letter is expected. Their payables team then updates the remittance address before your next invoice arrives.
What happens if my customer pays me after getting the notice?
The short answer is that you forward the payment to the lockbox, since under UCC 9-406 only payment to the factor discharges the invoice. Most agreements set a short window to turn it over. Repeated misdirected payments can change your account terms.
Can my customer refuse a Notice of Assignment?
The short answer is that a customer generally cannot refuse, because UCC 9-406 limits contract terms that forbid assigning a receivable. Federal contracts follow the Assignment of Claims Act instead, with its own notice and contract modification. See government contract financing for that process.
Does a Notice of Assignment hurt my customer relationship?
The short answer is that a Notice of Assignment rarely hurts a customer relationship, since commercial customers receive these notices from many suppliers and process them as a routine vendor update. Your payment terms and due dates stay the same. Check which customers qualify on the eligibility page.
Sources
- UCC 9-406 (law.cornell.edu)
- Assignment of Claims Act (law.cornell.edu)
General information about the Notice of Assignment. Rates, advance amounts and approval come from IFXI’s lending partner after its review and can change.
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