Updated 2025-12-14 · By Dana Whitfield

Notice of assignment

A notice of assignment tells an account debtor that an invoice or receivable has been assigned and payment should follow new instructions.

A notice of assignment is a formal communication that tells a customer—the account debtor in factoring terms—that the invoice they received has been assigned to a third party and payment should be directed accordingly. It is the operational handshake between the business relationship and the factoring arrangement.

The notice typically includes the factor's name, a payment address or lockbox number, wire instructions, and sometimes a contact for payment inquiries. It may be sent by the factor directly, by the business, or by both together, depending on how the factoring agreement structures the notification process.

Under UCC Article 9, once a valid notice of assignment is received by the account debtor, the account debtor must pay the assignee—the factor—to discharge its obligation. A customer who receives a proper notice of assignment and then pays the original seller instead of the factor has not discharged the debt. The factor can still collect, and the customer may have to pay twice. This rule gives the notice legal weight beyond simple communication.

From an operational standpoint, the notice needs to be accurate in every detail. An address error, a bank routing number with a single digit transposed, or an account number that belongs to a different program can redirect a payment into a processing limbo that takes days or weeks to resolve. During that time, the reserve release is delayed and available cash is reduced.

A critical practical issue is the customer's response to the notice. In most commercial relationships, the account debtor accepts the notice and updates their payment records without difficulty. In some situations, the customer may push back—either because they have an anti-assignment clause in the original contract, because they have a policy against paying third parties, or because they are confused about what the notice means for their business relationship with the seller.

Anti-assignment clauses in customer contracts can create complications. If the underlying agreement between the business and the customer prohibits assignment of payment rights, the legal effect of a factoring assignment against that customer can be disputed. UCC Article 9 has provisions that override anti-assignment clauses in many commercial contexts, but the analysis is not uniform across all situations. A factor should be aware of any such clauses in customer contracts before funding invoices from that customer.

The timing of the notice matters for the flow of funds. If the factor sends the notice before funding the invoice, the customer is informed from the start and payment is routed correctly from the first remittance. If the notice is sent after an invoice has already been submitted but before the customer processes payment, there is a risk the customer has already set up the payment to the old address. Prompt notice is cleaner operationally.

In a notification factoring arrangement, the notice is sent openly and the customer is expected to comply. In a non-notification structure, the seller may be responsible for maintaining payment routing without a formal factor-issued notice. Non-notification arrangements place more operational risk on the seller and require careful tracking to ensure payments reach the factor without misdirection.

When a customer accidentally pays the seller's account rather than the factor's lockbox after receiving a notice, the seller has received funds that belong to the factor. Most agreements require the seller to immediately forward any misdirected payments. Holding misdirected payments or applying them against other obligations creates a breach of the agreement and can trigger additional remedies.

From a customer relationship perspective, the notice of assignment is sometimes a sensitive communication. Business owners often worry that their customers will interpret the notice as a sign of financial distress. In practice, invoice factoring is widely used across transportation, staffing, construction, and other industries, and many commercial customers receive and process assignment notices routinely. The factor may offer guidance on how to frame the communication to minimize customer confusion.

Before signing a factoring agreement, confirm these specifics about the NOA process: who sends the notice and in what format, what happens if a customer refuses to acknowledge it, how misdirected payments are handled, whether the factor's name appears on the notice or is replaced with a neutral lockbox address, and how the notice is rescinded when the factoring relationship ends.