Notification letter

A letter sent to the customer directing them to pay the factor.

Why it matters

An accurate notification letter ensures customers direct payment correctly. Errors in payment instructions cause misdirected remittances, which are payments sent to the seller instead of the factor. In notification factoring, the letter marks the point at which the factor rights are formally communicated to the account debtor. Without proper notification, the customer can legally pay the original creditor and claim discharge of the debt, even after assignment. Timeliness matters: some agreements require the notice to be sent before or at the time of invoice delivery to the customer.

How it appears in contracts

The factoring agreement typically defines the required content of a notification letter: the name of the assignee, the remittance address, and a statement that payment to any other party will not discharge the debt. Some agreements give the factor authority to send the letter directly; others require the seller to send it. UCC Section 9-406 governs what a notification must contain to be effective against the account debtor. Sellers should retain copies of all notifications sent and confirm receipt where possible to establish a clear record if payment disputes arise.

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.