If you’re a business owner considering invoice factoring, the Notice of Assignment (NOA) may cause you some concern. What will my customers think? Why is it necessary? Can we skip sending it? Let’s address these questions to clarify what the NOA covers and put to rest any lingering apprehension.
What is a Notice of Assignment?
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.
What will my Customers Think?
Tremendous growth in the use of invoice factoring across many industries has made factoring more common than ever. According to the Global Factoring Market 2016-2020 report, analysts expect factoring to grow over 10% annually for the next several years.
Many of our factoring clients work with Fortune 500 companies who simply demand longer payment terms in order to do business. Clients using invoice factoring often show an appetite for accelerating growth and more efficiently managing operations and collections.
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’s customer.
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.
What is Covered in a Notice of Assignment?
The main points covered in a Notice of Assignment include:
- Business’s 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 The Southern Bank, your customers recognize the reliability and stability of your financing partner. Rather than receiving a NOA from an unknown entity or independent financing company, the bank’s reputation as the lender of choice strengthens your customer relationship.