The notice of assignment (NOA) informs your customer that a third party (bank, financing company, or factoring company) will manage and collect your accounts receivable (AR) going forward. The NOA arrives in the mail in the format of a letter, as the initial communication notifying your customers of the change in structure and process.
In short, you are most likely more concerned about it than your customers. Factoring is a widely used and acceptable means for financing your business.
Why is a Notice of Assignment Important?
In a factoring relationship, a business sells the future collection of accounts receivable (AR) in exchange for cash advances. So, the asset (future AR) belongs to the third party upon completion of the work or delivery of the goods. The business receives the cash advance and the third party waits for payment by the business’ customer.
Mildred Glaze, Senior Account Manager at altLINE, explains further, “The factor sends out the notice of assignment to be sure they place their client’s customers on notice to submit all payments to the factor and not to their client. The factor will essentially become their client’s accounts receivable department, documenting invoices and payments.”
Due to the intangible nature of AR, the third party provider needs legal language showing ownership of the AR. Thus, the legal language found in the NOA minimizes the risk placed on the third party provider. Third party providers require a NOA. It is critical to the structure of the factoring relationship and protects the third party provider in the event of misdirected payments.
In the case of a redirected payment, Mildred explains, “If a payment is in inadvertently sent to the client [instead of the factoring company], then the client turns around and forwards/sends the original method of payment to the factor…We then turnaround and re-notify that particular customer to have them confirm updating the remittance in their system.”
What is Covered in a Notice of Assignment?
The main points covered in a Notice of Assignment include:
Business’ accounts receivable has been assigned and is payable to a third party provider
Updated payment address, typically a lock box
Liability on the customer in the event of misdirected payment
How We’re Different
By working with altLINE, your customers recognize the reliability and stability of your financing partner. Rather than receiving an NOA from an unknown entity or independent financing company, the bank’s reputation as the lender of choice strengthens your customer relationship.
Read our article on the benefits of factoring through a bank for more information or get a free quote today!
