What is a Notice of Assignment?

A Notice of Assignment includes several key elements to ensure clarity and compliance:

• Factoring Company’s Right to Payment: The NOA informs the debtor that the client’s accounts receivable have been assigned to the factoring company.
• Updated Payment Terms: It provides the debtor with a new remittance address for all future payments.
• Exclusive Payment Instructions: Payments must be made only to the specified factoring company; unauthorized payments elsewhere do not fulfill the debtor’s obligation.
• Legal Rights and Responsibilities: The NOA clarifies the roles and responsibilities of all parties, reducing confusion and preventing legal complications.
• Client’s Authorization: The factoring client signs the document to acknowledge and validate the assignment.

The right to receive payments for amounts owed is one of the main protections a factoring company has in the factoring process. It is an essential part of almost every factoring program. In order to ensure that payments are directed appropriately, a factoring company must contact a customer to verify that the notice of assignment has been accepted and the remittance address has been updated.

A notice of assignment gives your factoring company the right to collect for ALL payments owed to you by your customer. Some factoring companies require that you factor every invoice for your customers, making this a non-issue. However, if you are working with a factoring company that allows you to pick and choose which invoices to factor for a customer, your factoring company will also receive payments for those unfactored invoices.

This happens for two reasons. First, allowing multiple remittance addresses for a payee exponentially increases the chance of a misdirected payment being made. Second, asking the customer to shoulder the additional workload of keeping track of which payments should be made to which remittance address would make invoice factoring unattractive for many customers, and thus limit the number of companies willing to work with a business that was factoring. All factoring companies have policies to efficiently deal with unfactored payments when they arrive.

Mistakes happen, and factoring companies understand that misdirected payments can occur. In such cases:

• The factoring client must immediately notify the factoring company.
• The payment must be forwarded promptly without being deposited into the client’s account.
• If the payment is withheld or hidden, penalties may be imposed as per the factoring contract.

Ensuring that all payments follow the legal agreement outlined in the NOA helps maintain compliance, protect contractual rights, and ensure timely funding for the business