What is a Notice of Assignment?

Some people may think back to their school days when upon seeing the term Notice of Assignment. However, a Notice of Assignment has nothing to do with what your teacher assigns.

It’s a tool that factoring agencies use to begin the process of helping small to large businesses receive the liquid cash to grow and thrive within their market. Today, many companies partner with a receivable factoring company to create the A/R financing they need to succeed. An essential step in this partnership is the creation of a Notice of Assignment.

What is In a Notice of Assignment?

As the first means of communicating between the factoring company and a company’s customer, the Notice of Assignment document is crucial in the process. There are four major elements of this notice.

  1. The Notice of Assignment lets the customer know that the finance company, whether it is non-recourse factoring or not, will be the ones managing the invoice.
  2. The document contains the important notice that the finance company is now the agency with the right to the payment.
  3. The Notice of Assignment contains all-new payment information, including bank information and full instructions on fulfilling the payment.
  4. And finally, Notice of Assignment documents include other pertinent legal matters. This differs for each receivable factoring company and sometimes for the customer account itself.

How Does this Impact Business Owners?

For business owners partnering with factoring companies, it’s essential to understand the process of no credit risk invoice factoring fully. All companies partnering with factoring companies will receive a copy of this notice. Business owners should not only read the Notice of Assignment that is being sent to the customer but also has an attorney review the document. There should be no surprises regarding this partnership. All reputable factoring companies will be happy to explain each step of the process clearly.

Sometimes, the Notice of Assignment includes a requirement that the customer signs and returns a form acknowledging receipt of the document. When factoring is a new process for companies, customers may call business owners to ask questions after they receive the notice. It will be a smoother, more confident conversation with the customer if the document has been reviewed thoroughly both in-house and with a legal advisor.

For example, it’s essential to know that if the customer pays the vendor directly instead of the factoring company, their debt is not technically paid. They still may be held liable. If business owners do receive funds that should have been sent to the factoring company, they will then need to be aware of the process for this transition and how to forward the payment as outlined in the document. Sometimes, there are fees associated with misdirected payments. Be sure to understand all that is in the notice, so there are no surprises.

If the invoice is not paid at all, the Notice of Assignment can be used as evidence in legal procedures initiated by a factoring company. While that process is rare, it’s worth understanding how important the document is.

Does Every Customer Receive a Notice?

Another form of factoring is nin-notification factoring. As the name implies, this kind of factoring differs in that there is no Notice of Assignment. Non-notification factoring is for customers with huge companies that meet specific requirements regarding budget and stability. At first, this may seem like a preferable method. However, the Notice of Assignment is designed to provide communication among all parties, so there is no misunderstanding.

When transitioning over to A/R factoring, there can be many questions on behalf of the company partnering with the factor and sometimes the customer themselves. It is important to remember that factoring is a popular way to fund businesses. Many business owners will use factoring as a method to cover both fixed and variable expenses, from paying bills to meeting payroll. The entire process can be part of a sound financial plan that can serve to strengthen the relationship between companies and customers.

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