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What is a Notice of Assignment? (Invoice Factoring)
A Notice of Assignment (NOA) is a document that factoring companies send to the end-customers of their clients. This document informs end-customers of the factoring financing relationship. Clients usually have some concerns when they learn that a factor will notify their customers. This article addresses these concerns and explains how the NOA works, why it is needed, and how to discuss it with customers. This article covers the following topics:
How are factoring transactions structured?
How are customer payments handled.
- What is the notice of assignment?
What will your customers think?
- Financing programs that don’t use a notice of assignment
Invoice factoring is a type of financing that helps companies with cash flow problems due to slow-paying invoices. Factoring transactions are not structured like a conventional business loan. Instead, a business sells its receivables to a factoring company in exchange for a payment.
In most transactions, a factoring company buys your receivables and pays for them in two installments. Your get the first installment, called the advance, shortly after selling the invoices. This installment provides immediate cash flow to your business. It usually covers 70% to 90% of the invoice.
The factor deposits the remaining 10% to 30% that was not advanced, less the cost of service, as a second installment once your client pays in full. This second installment settles the transaction. Factoring programs work as revolving lines, and clients can use them as often as needed.
One of the reasons factors offer this service to small companies is that they take a more “hands-on” approach than conventional lenders. An important part of this “hands-on” approach is notifying the end-customer that the invoices have been purchased and payments have to be remitted to the factor. This notification is done through a Notice of Assignment.
What is a notice of assignment?
The use of an NOA is standard and common in the factoring industry. It is sent to the customer’s Accounts Payable department. The NOA advises the end-customer:
- That a factoring company is managing receivables
- That the proceeds of their invoices have been assigned to the factor
- That payment must be submitted to a new address (usually a bank lockbox)
- Of other items specific to the factor
From the perspective of the factoring company, this letter is critical. In an invoice factoring transaction, you sell the intangible financial rights to your receivables. Since receivables are not physical goods, the NOA allows the factoring company to notify your customers that the financial rights to the invoice have been sold to them.
Some clients have concerns about sending this letter to their customers. This concern is entirely understandable, and factoring companies will work with you to address this concern.
Keep in mind that invoice factoring is a very common financing tool. Many small and midsize companies use it to finance operations and growth. As a matter of fact, your customer is probably aware of factoring and how it works.
Each factoring company has its preferred way of handling the NOA. Most companies suggest that the business owner tell their client that an NOA is forthcoming. This discussion gives them a chance to explain the process and address customer questions. Here are some ideas to keep in mind as you speak to clients.
a) Factoring benefits them
Using factoring benefits your customers financially. Factoring allows you to provide customers with 30- to 60-day payment terms while also offering them good service. This approach allows your customers to use their cash more effectively. Offering terms without factoring is difficult, especially if the business is growing.
b) Your company still provides services and support
You need to explain to customers that little is actually changing. Your company still provides all the services and support. They still communicate with you and your employees regularly.
c) Your company is not in trouble
Factoring does not necessarily mean that your company is in trouble. You may need to remind your customers that companies use factoring to achieve many objectives. This is true for any type of financing, including loans and lines of credit. Factoring is just a tool that smooths your cash flow.
Financing programs that don’t use an NOA
Some companies may avoid using an NOA if they qualify for some enhanced forms of receivables financing. There are two possible alternatives.
a) Non-notification factoring
A non-notification factoring plan works just like a regular factoring plan with a couple of exceptions. The most important difference is that the customer does not receive a conventional Notice of Assignment. Your customers still send payments to a new address. However, they are not told that the address belongs to the factor. Most factoring companies that offer this service send the change of address using your regular letterhead.
To qualify for non-notification factoring, companies have to meet these criteria:
- Minimum of $300,000 monthly revenues
- Track record longer than a year
- Reliable financial reports
- No serious financial difficulties
If your company qualifies for non-notification factoring, you should consider sales ledger financing instead. The qualification requirements are similar, but we believe sales ledger financing is a better solution.
b) Sales ledger financing
A sales ledger financing line operates much like a receivables line of credit . Your company can draw up to 90% of its outstanding receivables at any given time. These lines are much more flexible than a non-notification line. They operate with a borrowing certificate, so there is no need to submit a factoring schedule of accounts each time you need funds.
The finance company still handles payments. However, your customer does not get a Notice of Assignment. Instead, they get a letter indicating that the payment address has changed.
The qualification requirements are similar to the qualification requirements of non-notification factoring. We believe it is a better solution because advances are flexible, and lines usually have daily rates. This feature allows you to have better cost control. The qualification requirements include:
- Minimum 1- to 2-year track record
- Good receivables management systems
Get more information
Are you looking for a factoring quote ? We are a leading factoring company and can provide high advances at low rates. For information, call (877) 300 3258.
Note: The Notice of Assignment document and your factoring contracts are very important documents. Have a lawyer review and explain them to you to ensure you understand them. This article is not intended as legal advice.
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Notices of Assignment and Irrevocable Instructions Sample Clauses
Related to notices of assignment and irrevocable instructions.
Notices of assignment The Chargor shall deliver to the Collateral Agent (or procure delivery of) Notices of Assignment duly executed by, or on behalf of, the Chargor:
Notice of Assignment Upon its receipt of a duly executed and completed Assignment Agreement, together with the processing and recordation fee referred to in Section 10.6(d) (and any forms, certificates or other evidence required by this Agreement in connection therewith), Administrative Agent shall record the information contained in such Assignment Agreement in the Register, shall give prompt notice thereof to Company and shall maintain a copy of such Assignment Agreement.
FORM OF ASSIGNMENT AND ACCEPTANCE This Assignment and Acceptance (the “Assignment and Acceptance”) is dated as of the Effective Date set forth below and is entered into by and between [the][each]1 Assignor identified in item 1 below ([the][each, an] “Assignor”) and [the][each]2 Assignee identified in item 2 below ([the][each, an] “Assignee”). [It is understood and agreed that the rights and obligations of [the Assignors][the Assignees]3 hereunder are several and not joint.]4 Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (as amended, the “Credit Agreement”), receipt of a copy of which is hereby acknowledged by [the][each] Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Acceptance as if set forth herein in full. For an agreed consideration, [the][each] Assignor hereby irrevocably sells and assigns to [the Assignee][the respective Assignees], and [the][each] Assignee hereby irrevocably purchases and assumes from [the Assignor][the respective Assignors], subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below (i) all of [the Assignor’s][the respective Assignors’] rights and obligations in [its capacity as a Lender][their respective capacities as Lenders] under the Credit Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of [the Assignor][the respective Assignors] under the respective facilities identified below (including without limitation any swingline loans included in such facilities), and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of [the Assignor (in its capacity as a Lender)][the respective Assignors (in their respective capacities as Lenders)] against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including, but not limited to, contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned by [the][any] Assignor to [the][any] Assignee pursuant to clauses (i) and (ii) above being referred to herein collectively as [the][an] “Assigned Interest”). Each such sale and assignment is without recourse to [the][any] Assignor and, except as expressly provided in this Assignment and Acceptance, without representation or warranty by [the][any] Assignor.
LOSS-SHARING NOTICES GIVEN TO RECEIVER AND PURCHASER All notices, demands and other communications hereunder shall be in writing and shall be delivered by hand, or overnight courier, receipt requested, addressed to the parties as follows: If to Receiver, to: Federal Deposit Insurance Corporation as Receiver for (Insert Failed Bank name here) Division of Resolutions and Receiverships 000 00xx Xxxxxx, X.X. Xxxxxxxxxx, X.X. 00000 Attention: Xxxxx Malami, Manager, Capital Markets with a copy to: Federal Deposit Insurance Corporation as Receiver for (Insert Failed Bank name here) Room E7056 0000 Xxxxxxx Xxxxx, Xxxxxxxxx, XX 2226 Attn: Special Issues Unit With respect to a notice under Section 3.5 of this Single Family Shared-Loss Agreement, copies of such notice shall be sent to: Federal Deposit Insurance Corporation Legal Division 0000 Xxxxx Xx. Dallas, Texas 75201 Attention: Regional Counsel If to Assuming Bank, to: State Bank and Trust Company 0000 Xxxxxxxxx XX, Xxxxx 0000 Xxxxxxx, XX 00000 Attn: Xxx Xxxxxxx Such Persons and addresses may be changed from time to time by notice given pursuant to the provisions of this Article V. Any notice, demand or other communication delivered pursuant to the provisions of this Article IV shall be deemed to have been given on the date actually received.
Acknowledgement and Waiver 6.1 The Subscriber has acknowledged that the decision to purchase the Shares was solely made on the Company Information. The Subscriber hereby waives, to the fullest extent permitted by law, any rights of withdrawal, rescission or compensation for damages to which the Subscriber might be entitled in connection with the distribution of any of the Shares.
Acceptance of Assignments by Administrative Agent Upon its receipt of a duly completed Assignment and Assumption executed by an assigning Lender and an assignee, the assignee’s completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Assumption and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph.
Parties Bound; Assignment; Joint and Several This Guaranty shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns and legal representatives; provided, however, that Guarantor may not, without the prior written consent of Lender, assign any of its rights, powers, duties or obligations hereunder. If Guarantor consists of more than one person or party, the obligations and liabilities of each such person or party shall be joint and several.
Statements, Confirmations and Notices of Adverse Claims (a) The Securities Intermediary will send copies of all statements and confirmations for the Account simultaneously to the Grantor and the Secured Party.
Contents of Agreement; Amendment and Assignment (a) This Agreement sets forth the entire understanding between the parties hereto with respect to the subject matter hereof and cannot be changed, modified, extended or terminated except upon written amendment approved by the Board and executed on its behalf by a duly authorized officer and by Executive.
Amendment and Assignment of Agreement This Agreement may not be amended or assigned without the affirmative vote of a majority of the outstanding voting securities of the Fund, and this Agreement shall automatically and immediately terminate in the event of its assignment.
Assignments: why you need to serve a notice of assignment
It's the day of completion; security is taken, assignments are completed and funds move. Everyone breathes a sigh of relief. At this point, no-one wants to create unnecessary paperwork - not even the lawyers! Notices of assignment are, in some circumstances, optional. However, in other transactions they could be crucial to a lender's enforcement strategy. In the article below, we have given you the facts you need to consider when deciding whether or not you need to serve notice of assignment.
What issues are there with serving notice of assignment?
Assignments are useful tools for adding flexibility to banking transactions. They enable the transfer of one party's rights under a contract to a new party (for example, the right to receive an income stream or a debt) and allow security to be taken over intangible assets which might be unsuitable targets for a fixed charge. A lender's security net will often include assignments over contracts (such as insurance or material contracts), intellectual property rights, investments or receivables.
An assignment can be a legal assignment or an equitable assignment. If a legal assignment is required, the assignment must comply with a set of formalities set out in s136 of the Law of Property Act 1925, which include the requirement to give notice to the contract counterparty.
The main difference between legal and equitable assignments (other than the formalities required to create them) is that with a legal assignment, the assignee can usually bring an action against the contract counterparty in its own name following assignment. However, with an equitable assignment, the assignee will usually be required to join in proceedings with the assignor (unless the assignee has been granted specific powers to circumvent that). That may be problematic if the assignor is no longer available or interested in participating.
Why should we serve a notice of assignment?
The legal status of the assignment may affect the credit scoring that can be given to a particular class of assets. It may also affect a lender's ability to effect part of its exit strategy if that strategy requires the lender to be able to deal directly with the contract counterparty.
The case of General Nutrition Investment Company (GNIC) v Holland and Barrett International Ltd and another (H&B) provides an example of an equitable assignee being unable to deal directly with a contract counterparty as a result of a failure to provide a notice of assignment.
The case concerned the assignment of a trade mark licence to GNIC . The other party to the licence agreement was H&B. H&B had not received notice of the assignment. GNIC tried to terminate the licence agreement for breach by serving a notice of termination. H&B disputed the termination. By this point in time the original licensor had been dissolved and so was unable to assist.
At a hearing of preliminary issues, the High Court held that the notices of termination served by GNIC , as an equitable assignee, were invalid, because no notice of the assignment had been given to the licensee. Although only a High Court decision, this follows a Court of Appeal decision in the Warner Bros Records Inc v Rollgreen Ltd case, which was decided in the context of the attempt to exercise an option.
In both cases, an equitable assignee attempted to exercise a contractual right that would change the contractual relationship between the parties (i.e. by terminating the contractual relationship or exercising an option to extend the term of a licence). The judge in GNIC felt that "in each case, the counterparty (the recipient of the relevant notice) is entitled to see that the potential change in his contractual position is brought about by a person who is entitled, and whom he can see to be entitled, to bring about that change".
In a security context, this could hamper the ability of a lender to maximise the value of the secured assets but yet is a constraint that, in most transactions, could be easily avoided.
Why not serve notice?
Sometimes it's just not necessary or desirable. For example:
- If security is being taken over a large number of low value receivables or contracts, the time and cost involved in giving notice may be disproportionate to the additional value gained by obtaining a legal rather than an equitable assignment.
- If enforcement action were required, the equitable assignee typically has the option to join in the assignor to any proceedings (if it could not be waived by the court) and provision could be made in the assignment deed for the assignor to assist in such situations. Powers of attorney are also typically granted so that a lender can bring an action in the assignor's name.
- Enforcement is often not considered to be a significant issue given that the vast majority of assignees will never need to bring claims against the contract counterparty.
Care should however, be taken in all circumstances where the underlying contract contains a ban on assignment, as the contract counterparty would not have to recognise an assignment that is made in contravention of that ban. Furthermore, that contravention in itself may trigger termination and/or other rights in the assigned contract, that could affect the value of any underlying security.
What about acknowledgements of notices?
A simple acknowledgement of service of notice is simply evidence of the notice having been received. However, these documents often contain commitments or assurances by the contract counterparty which increase their value to the assignee.
Best practice for serving notice of assignment
Each transaction is different and the weighting given to each element of the security package will depend upon the nature of the debt and the borrower's business. The service of a notice of assignment may be a necessity or an optional extra. In each case, the question of whether to serve notice is best considered with your advisers at the start of a transaction to allow time for the lender's priorities to be highlighted to the borrowers and captured within the documents.
For further advice on serving notice of assignment please contact Kirsty Barnes or Catherine Phillips from our Banking & Finance team.
- [email protected]
- T: +44 (0)370 733 0605
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Related Insights & Resources
IMAGES
VIDEO
COMMENTS
WE ACKNOWLEDGE RECEIPT of the foregoing notice of irrevocable authority and instruction and undertake to comply with it. We hereby confirm and agree that all monies owing under the Agreement shall be paid in U.S. Dollars, without offset or counterclaim, immediately when such monies are due pursuant to the Agreement between us and the Company.
A Notice of Assignment (NOA) is a document that factoring companies send to the end-customers of their clients. This document informs end-customers of the factoring financing relationship. Clients usually have some concerns when they learn that a factor will notify their customers.
Notice of Assignment and Irrevocable Instructions means the Notice of Assignment and Irrevocable Instructions substantially in the form of Exhibit K hereto or in such other form as shall be acceptable to the Administrative Agent, including, without limitation, the inclusion of such notice and instructions in a Distribution Agreement.
Assignment and Payment Instruction. Borrower shall cause each of its Retailers and Resellers to execute a contract containing irrevocable, without Bank’s written consent, instructions, acceptable to B...
Sample 1. Notices of Assignment and Irrevocable Instructions. The Administrative Agent shall have received, to the extent not already received, with respect to each Eligible Receivable included in the initial Borrowing Base Certificate, a Notice of Assignment and Irrevocable Instructions executed by the appropriate Credit Party. Sample 1.
An assignment can be a legal assignment or an equitable assignment. If a legal assignment is required, the assignment must comply with a set of formalities set out in s136 of the Law of Property Act 1925, which include the requirement to give notice to the contract counterparty.