Assignment of contract

Assignment is the legal mechanism behind factoring and contract financing. You transfer the right to payment; the funder can then collect it directly, and the customer discharges its obligation by paying the assignee rather than you. A notice of assignment tells the customer where to pay and is what makes the assignment effective against them.

Assignment of the right to payment is not the same as delegating the work. You still have to perform. If you do not, the customer can withhold payment, and the funder will look to you under recourse or a repurchase obligation.

Anti-assignment language in the underlying customer contract is a common obstacle, and often a smaller one than it appears. Under UCC Article 9, provisions purporting to bar the assignment of accounts and payment intangibles are generally ineffective between the parties to the financing, so a supplier contract that says its receivables cannot be assigned usually cannot stop a security interest attaching. It can still create commercial friction with the customer, and non-UCC contracts are a different matter.

Government receivables are their own regime. Assignment of claims against the federal government runs through the Assignment of Claims Act, which permits assignment to a financing institution subject to notice and acknowledgment formalities. State and municipal contracts have their own rules, and getting the acknowledgment executed is often the long pole in funding a government contractor.