Notification factoring

Factoring where customers are told that the factor now owns the invoice and should receive payment.

Why it matters

Customer awareness of the assignment affects payment routing, NOA compliance, and the seller customer relationship. In notification factoring, the customer is told to pay the factor directly, and the notice of assignment establishes the factor right to collect. If the customer ignores the NOA and pays the seller instead, the factor must pursue the seller for the misdirected funds. Notification factoring is simpler to administer because the factor controls the payment receipt directly rather than depending on the seller to forward funds.

How it appears in contracts

Notification factoring programs are defined in the Structure or Program Type section of the factoring agreement. The agreement specifies the required timing and form of the notification: who sends the NOA, what information it must contain, and what proof of sending is required. Under UCC Section 9-406, an authenticated notification to the account debtor is necessary for the assignment to be fully enforceable against that debtor. The factoring agreement typically grants the factor the right to send the notification directly if the seller fails to do so.

Related terms

Related article: What is invoice factoring?

Related reading

Sources

  • International Factoring Association - International Factoring Association. Accessed 2026-05-19. Industry association source for factoring terminology and industry context.
  • Secured Finance Network - Secured Finance Network. Accessed 2026-05-19. Industry education source for secured finance and asset-based lending context.
Financial disclaimer. This page is educational only and is not financial, legal, tax, accounting, or credit advice. Factoring terms vary by provider and contract. Read the full disclaimer.