The notice of assignment, and why paying the wrong party costs your customer twice

It is a short letter, usually on the factor's letterhead and often countersigned by you. It identifies the parties, states that receivables have been assigned, and gives new remittance instructions.

Why it carries weight

Under UCC 9-406, an account debtor may discharge its obligation by paying the original creditor until it receives an authenticated notification that the amount has been assigned and that payment is to be made to the assignee. After that notification, the account debtor discharges the obligation only by paying the assignee.

In plain terms: after the notice, if your customer pays you, the invoice is generally still outstanding. The factor can require payment again. Your customer would then be chasing you for the money they sent by mistake.

This is not a technicality invented by factors. It is the assignment rule under state commercial law, and it is enacted across the states.

What your customer is expected to do

• Update the remittance details in their accounts payable system.
• Pay the factor, not you.
• Direct payment queries to whoever the notice names.
• In some cases, acknowledge the notice in writing. Whether an acknowledgement is required varies by agreement and by what the factor wants.

Misdirected payments

They happen constantly, usually because a long-standing customer pays from a saved template.

Getting it right at the start

1. Tell your customers yourself, before the letter goes out. A call from you costs five minutes and prevents a month of confusion.
2. Ask to see the notice template before you sign and ask whether the wording can be adjusted.
3. Change your invoice template the same week. New remittance details, prominently, on every invoice.
4. Update anything that carries your bank details — statements, portals, email footers, standing instructions.
5. Identify customers who pay by a method that is hard to redirect, such as a card on file or an ACH pull you initiate, and sort those out specifically.
6. Confirm with each major customer's AP that the change has been made in their system, rather than assuming the letter was actioned.

What a misdirected payment costs, worked

Your customer pays you instead of the factor. Under the assignment rule, that payment does not discharge their obligation, so the invoice is still outstanding as far as the factor is concerned. You are holding $48,000 that belongs to the factor, against a reserve of $7,200 and an advance of $40,800 already spent.

Forward it the same day and nothing has happened. Spend it — on payroll, on stock, on the next job — and you now owe the factor $48,000 you no longer have, under an agreement that almost certainly calls the money trust property. That is a breach, it is usually an event of default, and it is precisely the exposure a validity guarantee is written to capture.

The customer's position is uncomfortable too. Having paid the wrong party, they can be required to pay again and then pursue you for the first payment. A business that lets that happen twice to the same customer has damaged the relationship far more than the notice ever did.

The practical rule is simple and worth writing on the wall by whoever opens the post: any customer payment that arrives here goes to the factor the day it arrives, unopened questions and all. There is no version of holding it that improves your position.

What to do when a customer refuses to acknowledge

It happens, and it is not always obstruction. Some AP departments have a policy against acknowledging assignments, some require their own form, and some route anything unusual to a legal team that takes a month.

Work out first whether the factor needs an acknowledgement or merely needs the notice delivered. Under the assignment rule the operative event is the account debtor receiving an authenticated notification, not signing anything back. Many factors ask for an acknowledgement as belt and braces rather than as a legal necessity, and where that is the case a proof of delivery may be enough.

Where a customer genuinely will not accept the assignment — a contract with an anti-assignment clause, a public body with its own regime, a large corporate with a fixed process — raise it with the factor during underwriting. The usual outcomes are that the customer is excluded from the facility, financed on a non-notification basis if the factor offers one, or handled through the customer's own form.

What not to do is submit the invoice anyway and hope. An invoice the factor cannot verify or redirect is the one that gets charged back, and the chargeback lands on a week you had already spent the money.

On government and large corporate accounts

Federal receivables have their own regime under the Assignment of Claims Act, with formal requirements many factors will not undertake. State, municipal and large corporate customers often have their own process for accepting an assignment, sometimes involving a specific form or a portal update. If a major customer falls into one of these categories, raise it with the factor during underwriting, not after the notice bounces.