What is a notice of assignment?
An assignment takes place when one party is holding a right to property, claims, bills, lease, etc., of another party and wishes to pass it along (or sell it) to a third party. As complicated as that sounds, it really isn’t. Strangely enough, many assignments can be made under the law without immediately informing, or obtaining the permission, of the personal obligated to perform under the contract. An example of this is when your mortgage is sold to another mortgage company. The original mortgage company may not inform you for several weeks, and they certainly aren’t going to ask your permission to make the sale.
If a person obligated to perform has received notice of the assignment and still insists on paying the initial assignor, the person will still be obligated to pay the new assignee according to the agreement. If the obligated party has not yet been informed of the assignment and pays the original note holder (assignor), the assignor is obligated to turn those funds over to the new assignee. But, what are the remedies if this doesn’t take place? Actually, the new assignee may find themselves in a difficult position if the assignor simply takes off with their funds or payment. They are limited to taking action against the person they bought the note from (assignor) and cannot hold the obligator liable. Therefore, it is important to remember that if any note or obligation is assigned to another party, each party should be well aware of their responsibilities in the transaction and uphold them according to the laws of their state. Assignment forms should be well thought out and written in a manner which prevents the failure of one party against another.
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Factoring Notice of Assignment (NOA): Everything You Need to Know
A factoring notice of assignment (NOA) is usually required when you factor your invoices. Rest assured, NOAs are quite common in business and aren’t a cause for concern. However, it helps to understand what they are and how they work so that you can explain them to your customers as needed.
Assignment of Debt Explained
Companies transfer debt, along with all associated rights and obligations, to third parties all the time. One example of this occurs with collection companies. In these cases, the business, also referred to as the creditor, sells its uncollectable balances or assigns specific debts to the collection company. The collection company is then authorized to collect those specific balances on behalf of the creditor.
Assignment of debt may also come into play when businesses outsource their receivables and leverage certain types of funding, among other situations.
What Does Notice of Assignment Mean?
The customer, also referred to as the debtor, must be informed when a creditor assigns their debt to a third party. The document used in this process is referred to as a notice of assignment of debt.
What is a Notice of Assignment in Factoring?
When you leverage invoice factoring , you’re selling an unpaid B2B invoice to a factoring company at a discount. In exchange, you receive up to 98 percent of the invoice’s value right away and get the remaining sum minus a small factoring fee when your client pays. This means you’re not waiting 30, 60, or more days for payment. This cash flow acceleration helps businesses bridge cash flow gaps caused by slow-paying customers, seasonality, rapid growth, and more. Plus, the cash can be used for anything the business needs. This unique process means businesses can receive immediate funding without creating debt like other funding sources.
A notice of assignment is required in factoring because you’re assigning debt to a third party – the factoring company – and the customers involved need to know.
The Role of Notice of Assignment for Cash Flow
Invoice factoring stands out as a solution for businesses seeking to improve their cash flow. When a company decides to use invoice factoring, it enters into a factoring relationship, where accounts receivable and financial rights are handled differently than usual. This process involves the NOA, a pivotal document in factoring transactions. Essentially, NOA is a simple letter informing customers that the payment terms have changed and future payments should be made payable to the factoring company.
This notification ensures that there are no misdirected payments, which is a critical aspect when managing accounts payable and securing immediate cash. By using factoring, businesses can access working capital, which reduces the strain of slow-paying customers. It’s important for factoring clients to understand how factoring companies notify your customers and the implications of this process. The factoring contract typically outlines these details, ensuring that every party in a factoring transaction is aware of their responsibilities, especially regarding remittance addresses and payment information.
Factoring services offer an alternative to traditional lines of credit, providing businesses with high advances at low rates. This method is beneficial for companies that demand longer payment terms from their clients. By transferring the right to collect payments to the factoring company, the business can focus on its core operations while the finance company handles the receivables. Understanding the benefits of factoring and effectively communicating them to your customers may improve the factoring process and maintain healthy customer relationships, even when introducing new financial arrangements like invoice factoring.
The Importance of a Notice of Assignment in Factoring
Notice of Assignment in invoice factoring keeps your customers in the loop so they know who is collecting and why. It also lets them know where to send their payments. This streamlines the process and helps ensure there’s no confusion about where payments need to go.
Elements of a Factoring NOA Document
Each factoring company words its NOA a bit differently, but NOAs usually include:
- A statement that indicates the factoring company is now managing the invoice or invoices.
- A notice that payments should be made to the factoring company.
- Details on how payments can be made, including addresses, bank details, or payment portal information.
- What will occur if payments are sent to the business instead of the third party.
- A signature from someone at your business to show your customer that the NOA is authentic and a signature space for your customer to sign indicating that they’ve read and understand the document.
How Do Factoring Companies Notify Your Customers
A factoring notice of assignment is usually sent to customers by U.S. mail, though sometimes factoring companies use other delivery services or even digitize the NOA.
What Will Your Clients Think of You Factoring Your Invoices?
Sometimes, businesses that are new to invoice factoring have concerns about how customers will react to factoring or receiving an NOA. However, it’s usually not a cause for concern.
Although your factoring company isn’t an outsourcing company, it behaves quite similarly when collecting invoices. Nearly 40 percent of small businesses outsource at least one business process, Clutch reports. That means a significant portion of your customers already have some experience engaging with third parties. Furthermore, invoice factoring is growing in leaps and bounds and is expected to grow by eight percent in the coming years, per Grandview Research . Many of your customers already have experience with factoring or will very soon. Because most businesses have some exposure to factoring or will in the near future, it’s generally seen as an ordinary business practice – nothing more, nothing less.
However, even if factoring is entirely new to your customers, how they respond to your decision is often determined by how you present it. For instance, it accelerates payments without putting pressure on your customers to pay faster. It has benefits for them, too, and can help improve the relationship. This alone can actually help some businesses win bids or attract new customers. Explaining it to them this way can help soothe any concerns if customers come to you with questions.
How to Ensure Your Customer Relationships Are Protected
Most factoring companies will take good care of their customers because they are a reflection of you. Your repeat business helps ensure they’ll have repeat business. However, reviewing a factoring company’s testimonials and success stories is always a good idea to understand better how they operate before you sign up.
It’s also essential to work with a company like Viva that doesn’t send mass notifications to all its customers. We only notify those who are debtors on the invoices you’d like to factor to eliminate any confusion.
Lastly, it’s better to work with a company that provides you with 24/7 access to your account so you can see what’s paid and outstanding at a glance and can make decisions about orders using real-time data.
Request a Complimentary Invoice Factoring Quote
At Viva Capital, we always provide white glove care to the businesses we serve and their customers.As part of our service, we handle the Notice of Assignment with professionalism. Our collection experts make it easy for your customers to manage their bills and are happy to answer their questions. You’ll also have access to your personal Customer Account Portal so you can make informed decisions on the fly and always know what’s outstanding. To learn more or get started, request a complimentary invoice factoring quote .
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What is a Notice of Assignment?
- Ultimate Invoice Factoring Guide
- What is a Notice of…
A factoring contract can contain many parts, but few are as important as the Notice of Assignment.
What are the parts of a notice of assignment.
A notice of assignment contains a few standard parts. First, it informs your customers that you are factoring your invoices and that your factoring company has been assigned as the payee for your accounts receivables. Next, a notice of assignment provides your customer with an updated remittance address for all current and future payments to be sent to. Third, it contains explicit instructions that all payments should be made to the factoring company’s remittance address only, and that no other payments should be made to any other address without explicit permission from the factoring company. It also contains verbiage that states that payments made in conflict to this notice of assignment will not be considered to have discharged a customer’s obligation for payment to the factoring company. Lastly, the factoring client signs the notice of assignment to prove it is valid.
Why do my customers need to know that I’m factoring?
The right to receive payments for amounts owed is one of the main protections a factoring company has in the factoring process. It is an essential part of almost every factoring program. In order to assure that payments are directed appropriately, a factoring company must contact a customer to verify that the notice of assignment has been accepted and the remittance address has been updated.
Why does my factoring company receive payments for invoices that weren’t factored?
A notice of assignment gives your factoring company the right to collect for ALL payments owed to you by your customer. Some factoring companies require that you factor every invoice for your customers, making this a non-issue. However, if you are working with a factoring company that allows you to pick and choose which invoices to factor for a customer, your factoring company will also receive payments for those unfactored invoices.
This happens for two reasons. First, allowing multiple remittance addresses for a payee exponentially increases the chance of a misdirected payment being made. Second, asking the customer to shoulder the additional workload of keeping track of which payments should be made to which remittance address would make invoice factoring unattractive for many customers, and thus limit the number of companies willing to work with a business that was factoring. All factoring companies have policies to efficiently deal with unfactored payments when they arrive.
What happens if I receive a payment that should have been sent to my factoring company?
Most factoring companies understand that accidents happen, and mistakes will be made. If an error in payment occurs in good faith, factoring companies have processes in place to deal with the issue. Firstly, it is important that a factoring client does not deposit the payment into their account, but rather they should immediately notify their factoring company of the errant payment and send it immediately to their factoring company. If a factoring client fails to do so, or attempts to hide the payment from their factoring company, then that client will be responsible for a misdirected payment, which often carries heavy penalties in the factoring contract.
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- TruckSmarter
- Factoring and invoicing basics
What is a Notice of Assignment (NOA)?
- Updated October 03, 2023 21:41
| 🧠 Note that TruckSmarter's Factoring business is known as " ". Please refer to SmartTrucker when you are talking with brokers about your factoring company! |
What is a Notice of Assignment?
The Notice of Assignment (NOA) is a document signed by a factoring company and carrier that informs brokers of the agreement to purchase your receivables. It includes important details like the factoring company's address and banking information, and ensures the broker sends payment to the right place.
When you sign up with new brokers, they will ask for your payment information — please be sure to provide a copy of your NOA. Sending it to them in advance can help avoid delays in the payment process. Please make sure to choose standard 30 day pay with new brokers!
Many brokers do not frequently update their list of factoring companies, so SmartTrucker may not be an option. If you observe this, simply select “Other". If "Other" is not an option, leave it blank and attach your NOA anyway.
Broker status
Please note that some brokers will not allow SmartTrucker to invoice them until they have confirmed and processed your NOA. To help you with this process, we will send your NOA to the largest brokers on the TruckSmarter Load Board after you sign up for factoring. Lastly, if there are any brokers that you regularly work with but they do not have your NOA, let us know and we can send them your NOA on your behalf. Read more about how to send your NOA to brokers in our Broker status article.
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13 February 2023
Notice of Assignment in Factoring in the U.S
When a business uses invoice factoring, they transfer ownership of its accounts receivable to a factoring company, which then has the responsibility to collect payment for those invoices.
Therefore, a document is issued to alert its customers of this. This is known as a notice of assignment.
Meaning of Notice of Assignment
A notice of assignment is a document that notifies clients that a factoring company has acquired ownership of their accounts receivable, or invoices, from the original business.
The notice's objective is to alert customers to the ownership change and specify who should receive payments.
Importance of Notice of Assignment
A notice of assignment is vital because it officially notifies customers that the ownership of an invoice has changed hands and that they should now direct payments to the factoring company.
The notice helps ensure that payments are sent to the appropriate parties , avoiding misunderstandings and potential conflicts and preventing uncertainty.
In the event of a disagreement, having a detailed and official notice of assignment can safeguard the legal interests of both the company and the factoring company.
Impact of Notice of Assignment on Businesses
The possible impacts faced by businesses by using a factoring company and sending their customers a notice of assignment are:
1. Enhanced customer relationships: By providing clear and official notification to customers of the change in ownership of invoices, a business can help maintain and strengthen its relationship with them.
2. Improved cash flow: By transferring ownership of invoices to a factoring company, a business can receive payment more quickly and improve its overall cash flow.
3. Increased operational efficiency: By using a factoring company to manage the collections process, a business can free up internal resources and focus on its core operations, leading to increased efficiency.
4. Reduced risk: By transferring the responsibility of collecting payment to a factoring company, a business can reduce its exposure to the risk of non-payment and bad debt.
However, before deciding to utilize factoring , it's crucial to consider any potential drawbacks, such as losing control over the collection process and the expense of the factoring service.
Factors Covered in a Notice of Assignment The main sections covered are:
- The company's accounts receivable have been transferred to a third-party financial institution, and payment should now be made to them
- The customer should now send payments to a new address, typically a secure payment processing location
- The customer will be responsible if they make a payment to the wrong address
Information in a Notice of Assignment
In a factoring notice of assignment, the following details are covered to notify the business’ customer about the transfer of ownership of accounts receivable:
- Particulars of the accounts receivable being assigned , including the amount and invoice numbers
- Details of the factor and the client/debtor
- Specifics of the assignment of the accounts receivable, including the effective date and any conditions of the assignment
- Instructions for the customer on how to direct future payments to the factor
- Any other relevant terms and conditions of the factoring agreement
What Happens When an Obligor Doesn’t Receive Notice of Agreement
A business that sells its accounts receivables (invoices) to a third-party factor must send a notice of agreement to its customers.
The purpose of the notice is to inform the customer that the factor has taken ownership of the invoice, and the payments should be made directly to the factor instead of the business.
If the customer does not receive the notice, they may continue to make the payments to the business, leading to confusion, delayed payments to the factor and potential disputes.
In some cases, the customer may have the right to demand a return of the payment made to the factor or stop payment if the notice of assignment was not correctly given.
How to Receive Notice of Agreement
A factoring notice of agreement is typically provided by the factoring company or third-party factor that has purchased the accounts receivable (invoices) from the business.
The notice is usually generated by the factor and given to the business to send to its customers.
The business may also be responsible for ensuring that the notice of assignment is delivered correctly to its customers.
Some factoring companies provide templates or sample notices that the business can use.
Requirements for a Notice of Assignment
To obtain a notice of assignment (NOA) from a factoring company, the following requirements are necessary:
- Monthly revenue of at least $300,000
- A stable financial track record of 1-2 years
- Accurate and trustworthy financial reports
- Effective management of accounts receivable
- No significant financial difficulties
1. Who Sends a Factoring Notice of Assignment? A factoring notice of assignment is typically sent by the business that has sold its accounts receivables or invoices to a third-party factor or factoring company.
The factor usually provides the notice of assignment, and the business may have to sign a factoring agreement with the factor to obtain the notice.
The notice informs the business’ customers that the factor has taken over the ownership of the invoices, and the payments should be made directly to the factoring company instead of the business.
2. How Much Does a Notice of Assignment Cost? The cost for issuing a notice of assignment in factor can differ based on various elements, such as the amount assigned, the state where the assignment is taking place and the particular provisions of the assignment agreement.
This cost may include legal fees, filing paperwork fees and other administrative expenses. It's crucial to examine the assignment agreement thoroughly to determine the precise cost and be aware of any additional fees that may be incurred.
3. How Long Does a Notice of Assignment Take? The duration of issuing a notice of assignment in factoring can differ based on particular circumstances. Usually, the process can take anywhere between a few days to weeks.
The length of the time may be influenced by factors such as the state in which the assignment is getting issued, the complexity of the assignment agreement and the accessibility of relevant parties.
Moreover, the time needed for the notice of assignment may be affected by any legal challenges or hindrances.
4. Does Notice of Assessment Mean You Owe Money? In the United States, a notice of assessment usually implies that you owe money to the government.
However, it is contingent on particular circumstances. The Internal Revenue Service (IRS) sends out the notice of assessment to inform taxpayers of any modification to their tax obligations.
If the notice displays an increase in the amount owed, it implies that the taxpayer has an outstanding balance with the IRS and should pay it promptly to prevent further interest and penalties.
On the other hand, if it shows a decrease in the amount owed, it showcases that the taxpayer has paid more taxes than required and may be eligible for a refund.
It is, therefore, always advisable to thoroughly examine the notice and to get help from a professional.
5. Is Notice of Agreement a Proof of Debt? A notice of agreement alone is not considered proof of a debt. The document merely outlines the terms and conditions agreed upon by the parties involved.
It is not enough evidence to confirm the presence of debt but rather serves as a record of the agreement between the parties.
To establish proof of debt, other financial documents such as receipts, invoices or other documentation may be necessary.
The specific requirements for proving a debt depend upon the type of debt and the laws of the jurisdiction where it is being established.
6. What is a Letter of Release? A letter of release from a factoring company is a declaration that a debt has been satisfied and is no longer the company's responsibility.
In factoring, a business sells its accounts receivable to a factoring company for a fee to receive cash quickly.
Upon receiving the payment on the accounts receivable by the business’ customer, the factoring company issues a letter of release, confirming that the debt has been fully paid off and the company is no longer obligated to it.
The letter serves as proof that the debt has been fully resolved. It can be used to clear the debt from the business's financial records.
The specifics of the letter of release, including the terms and conditions, will depend on the particular factoring agreement and the laws in the jurisdiction where it is formed and drafted.
Siddhi Parekh
Finance manager at drip capital.
Table of Content
- Information in a NOA
- What Happens When an Obligor Doesn’t Receive NOA
- How to Receive NOA
- Requirements for NOA
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Bankers Factoring an Employee-Owned Accounts Receivable Factoring Company Employee-Owned A/R Factoring Company
July 3, 2024 By Chris Curtin
What is a Notice of Assignment in Factoring?
Why is a factoring notice of assignment (noa) important when selling your a/r.
Table of contents
What is the notice of assignment letter, what is included in the factor financing noa, how does factoring noa impact my customers, benefits of noa factoring:, factoring arrangement: assignment of accounts receivable, notice of assignment factoring, bankers factoring difference, what is a notice of assignment in factoring.
It is a letter that informs the business owner’s customers of your relationship with a factoring company. The notice of assignment letter is the first communication between the invoice factor company and the account debtor (your customer). The factoring contract spells out the change in invoice ownership.
The invoice factoring companies will send your customers, also known as debtors, a notice of assignment (NOA) letter. It will be sent immediately when you sell your unpaid receivables. The letter is also a standard document in factoring agreements. Accounts receivable (A/R) invoice factoring is a common financial product to accelerate the cash flows of small businesses.
Factoring invoices is a time-tested business funding solution to support operations and fund growth plans. Partnering with factoring companies allows your business to receive fast cash flow by selling invoices. Moreover, sending the NOA letter is a critical step to communicate your A/R has been assigned and is payable to the factoring company.
You can also read how factoring companies buy accounts receivable .
Complete Bankers Factoring online funding application to begin your debt-free funding process including Bad Debt Protection.
Contact Bankers Factoring to learn about the factoring NOA process and how we can provide consistent cash flow funding. We partner with you and your customers to provide an elite program for your business success.
A Notice of Assignment (NOA) is a letter that informs account debtors their creditor (our client) is factoring invoices under the Universal Commercial Code (UCC) . Invoice factoring is an agreement to assign your accounts receivable (A/R) to a factoring company. So the letter communicates that a third party (factoring company) is managing and collecting your A/R. An assignment letter notifies your customers or account debtors of the transfer in ownership.
The NOA letter is the first-time customers will learn that you are utilizing factor financing. But selling your unpaid invoices to a factoring company will not concern your customer. In addition, invoice funding is a popular financing vehicle to cover operating expenses and accelerate sales growth.
Keep reading, Factoring Company: What it is and Your Best Choice .
Factoring NOA letters are standard documents sent to customer (debtor) accounting departments. Assignment letters include language regarding the arrangement:
- NOA letter informs your customers that a factoring company is managing receivable invoices
- The notice includes language stating the factoring company has the right to payments
- Your business A/R has been assigned to a third party, and payment is transferred to them
- Updated information for making payments (remittance) to factor
- Notice of assignment letters include legal clauses related to the assignment
Assignment companies send NOA to establish their ownership and management position for your receivables. That’s because letting your customers know about the receivable assignment helps them make timely payments. Moreover, the factor provides specific remittance instructions to ensure an easy transaction for all parties involved.
Keep reading How Does a Factoring Company Work ?
Selling your receivables can cause stress about sending an NOA letter to your customer. However, invoice factoring demonstrates to your customers that you are serious about your operational performance by establishing financing lines. In fact, the US factoring market valued at $3.9 billion in 2022 shows how many companies use invoice services ( IBISWorld ).
- Streamlined accounting process between your debtor’s accounts payable team and the factoring company.
- Partnering with a factoring company demonstrates your plans to grow your company and shows you are serious about your finances.
- Invoice factoring companies enhance customer service relationships by providing highly skilled professionals to communicate with your customers.
If your company works with commercial customers that demand extended credit terms, a factoring facility can help your cash flow.
Keep reading How Factor Financing Impacts Customer Relations .
A/R factoring is a type of business funding that injects working capital into companies with slow-paying customers. However, factoring agreements are not debt-financing like business loans and do not dilute your equity position. To know more, keep reading How to Finance Your Business Without Giving Up Equity .
The notice to assignment is very familiar to a business owner if you own a trucking company. It protects you against short payments and chargebacks.
Assigning accounts receivable lets your account debtors know you have transferred ownership of A/R. By selling your unpaid invoices, you receive two cash installments.
The initial cash advance, the first installment, ranges from 80 to 93% of your total A/R purchase value. The second and final installment, the factoring rebate or discount, releases the remaining balance, less our factoring fee. Therefore, the assignment of accounts receivable removes cash flow obstacles by bypassing the lengthy receivable period.
Factoring your receivables is a great way to overcome cash flow struggles. Additionally, factoring companies work closely with your customers, allowing you to focus on your business. However, with over 800 factoring companies in the US, finding a factoring company can be difficult. Bankers Factoring provides the best service with 20 years of experience. We communicate well with our customers while protecting our client’s interests.
Notice of assignment letters (NOA) can be scary for business owners unfamiliar with invoice factoring services. Most startups, small businesses, and companies extend credit terms requiring commercial funding. Offering net 30 to 120-day payment terms places cash flow problems for most entities.
Assignment letters should not turn you away from alternative financing. Your customers are familiar with NOA factoring and have other customers working with factoring companies.
Worrying about notice of assignment letters only prevents your business from achieving its full potential as a business owner. Bankers Factoring provides the best non-recourse factoring services and manages customer relations that enhance your business profile. Furthermore, we take on the credit risk from unpaid receivables while providing up to 93% cash advances. Accelerating your receivables cycle can unleash new sales growth and operational performance. Utilize free cash flow to improve profitability.
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What is a Notice of Assignment?
Last Updated May 1, 2024
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 Factoring 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’ 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, Glaze 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
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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!
What does a notice of assignment mean in trucking?
A notice of assignment (NOA) is a document that notifies your customers that your factoring company has the right to collect payments on invoices. In a factoring relationship, a business sells its invoices to a third-party factoring company, which then collects payment on them. An NOA notifies your customers of this change in structure.
Who provides a notice of assignment?
Grey was previously the Director of Marketing for altLINE by The Southern Bank. With 10 years’ experience in digital marketing, content creation and small business operations, he helped businesses find the information they needed to make informed decisions about invoice factoring and A/R financing.
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Learn About Notice of Assignment for Invoice Factoring
In a factoring relationship, you agree to assign your selected receivables to the factoring company. By advancing your cash against your invoices, the factor has purchased the right to collect amounts due from your customers. The Notice of Assignment is a critical part of your factoring paperwork as it reflects the change in invoice ownership.
What is a Notice of Assignment?
The Notice of Assignment is a simple letter the factoring company sends to your customers whose invoices you are factoring. In writing, the notice informs your customers that the accounts receivable is assigned, and future payments should be made payable to the factoring company. The notice will also include a remittance address so your customer can change their payment information.
The Notice of Assignment legally explains to your customers that any payments they make to you instead of the factor will not satisfy their obligation. The factoring company may hold your customers liable for misdirected amounts. This may occur if your customers choose to ignore the notice or fail to update payment information.
Many factors will require your customers to sign and return a copy of the notice to acknowledge receipt. This is not always required, though. Instead, the Notice of Assignment may include language that considers your customer’s continued use of your services to constitute an agreement to the notice. In addition, the factor may only revoke a Notice of Assignment if they send a signed and notarized release notification to your customers. They will do so if you choose not to factor that account any longer or you end your factoring relationship. In either case, the account must have no outstanding balance.
What Programs Don’t Use a Notice of Assignment?
Financing programs that do not use a notice of assignment include non-notification factoring and sales ledger financing.
Non-notification factoring is similar to regular factoring, but with a few key differences. Instead of sending a conventional Notice of Assignment to customers, the factoring company informs them of a new payment address using the company’s regular letterhead. This allows the customer to still send payments to the new address without being aware that it belongs to the factor. To qualify for non-notification factoring, companies typically need to have monthly revenues of at least $300,000, a track record of over a year, reliable financial reports, and no serious financial difficulties.
Sales ledger financing operates like a line of credit based on outstanding receivables. Companies can access up to 90% of their outstanding receivables at any given time without the need to submit a factoring schedule of accounts for each transaction. Although the finance company still handles payments, the customer does not receive a Notice of Assignment. Instead, they receive a letter indicating a change in the payment address. Sales ledger financing offers greater flexibility compared to non-notification factoring, with daily rates allowing for better cost control. The qualification requirements for sales ledger financing usually include monthly revenues of at least $300,000, a track record of 1-2 years, reliable financial reports, good receivables management systems, and no serious financial difficulties.
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Why do Factoring Companies Notify Your Customers?
The Notice of Assignment is a vital form of protection for a factoring company. It protects the factor in case the business owner (the factor’s client) receives the payment instead of the factoring company.
In a best-case scenario, the notice serves to inform every party in a factoring transaction of their rights and responsibilities. It also gives your customer the appropriate address to make account payments, allowing your factoring relationship to continue smoothly.
In a worst-case scenario, a factor can recover unpaid amounts from your customer should they continuously pay over notice or not pay at all. A Notice of Assignment is evidence in any legal proceeding — from a demand letter for payment to a full-fledged lawsuit — that asserts the factor’s standing and rights to payment.
What Will Your Customers Think?
Customers may have concerns or questions when they receive a letter regarding the use of invoice factoring. It’s understandable that they may be unsure or unfamiliar with this financing tool. As a business owner, it’s important to address these concerns and communicate with your customers effectively.
First and foremost, it’s essential to acknowledge that invoice factoring is a common practice utilized by many small and midsize companies to finance their operations and facilitate growth. Chances are, your customers are already aware of this financing method and how it works.
When discussing invoice factoring with your customers, emphasize the benefits it provides to them. By using factoring, you can offer them extended payment terms, such as 30- to 60-day terms, while still ensuring excellent service. This enables your customers to utilize their available cash resources more effectively. Without factoring, providing extended payment terms might be challenging, especially for businesses experiencing growth.
It’s crucial to assure your customers that little is changing in terms of the services and support your company provides. Reassure them that they will still have the same level of communication and engagement with you and your employees as before. Highlight that despite factoring being implemented, your commitment to their satisfaction remains unchanged.
Address the misconception that factoring indicates financial trouble within your company. Remind your customers that factoring is a versatile tool used to achieve various goals and objectives, just like other forms of financing such as loans or lines of credit. Factoring simply serves to smooth out your cash flow and support your business’s overall financial stability and growth.
Overall, open communication with your customers is key. Provide them with transparency and reassurance, explaining the benefits of factoring and emphasizing that it is a common and established financing practice. By effectively addressing their concerns, you can foster trust and maintain strong relationships with your valued customers.
Why a Notice of Assignment Matters To You
You will receive a copy of the Notice of Assignment that the factor sends to your customers. While the notice is to inform your customers, it also has an important implication for you as well.
As your factoring agreement explains, payments your company receives from your customers over notice are payable to the factoring company. Even in the smoothest transition, you may receive payments sent before receipt of the notice or released before your customers’ updated their payment system. There will likely be a provision explaining the procedure for sending misdirected payments to the factor in these cases. Misdirected payments are usually sent by overnight check or via bank transfer.
However, you may be responsible for additional penalties and fees if your customers continue to pay over notice, and you deposit those payments into your account. In addition, you may end up owing more, depending on fee structure, due to the extra time it takes for the factor to receive payment. Some factors include a misdirected payment fee in the factoring agreement that you will have to pay if you fail to return misdirected payments to the factor. Therefore, fees may be higher if you are responsible for the misdirection.
As with any legal document, be sure to be fully aware of the language used within the Notice of Assignment. Be mindful of your customers’ responsiveness to the notice. Take action immediately if you realize that any of your customers are not sending their payments on time. This transparency solidifies your factoring relationship, builds trust with your factor, and protects your interests.
What if the Payment is for an Invoice I Didn’t Factor?
When you assign your customers’ receivables to your factoring company, you agree to direct all payments to the factor, even for invoices that you did not factor. This eliminates complications for all parties and ensures that the factoring company receives every payment they should. Without an all-inclusive assignment, your customers would receive a notification every single time you factor an invoice. They would have to retain two addresses on file, increasing the likelihood of misdirected payments.
Your factoring company will have a straightforward procedure in place to address non-factored payments. This may include applying those payments to open invoices and sending you the difference or the total amount in a regularly scheduled reserve release. Stay prepared by asking your factor about their policies surrounding non-factored payments.
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What is a Notice of Assignment and How Does it Protect Construction Businesses?
by CapitalPlus Financial | Nov 8, 2023 | Blog
A Notice of Assignment (NOA) is a crucial document playing a significant role in protecting all parties involved. Understanding its definition and benefits is essential for business owners utilizing such services as invoice factoring to manage cash flow and operations effectively.
What is a Notice of Assignment?
A Notice of Assignment is a legal declaration of when rights or obligations under a contract are transferred from one party to another . For example, if your company sells its rights to accounts receivable payment to a third party such as a factoring company , a Notice of Assignment would be sent to the party owing the payment informing them of the new payee.
How Does a Notice of Assignment Protect All Parties?
- Ensures Payment: By notifying your debtor of the new arrangement, the NOA outlines the factoring company’s right to collect the payment, minimizing the risk of payment disputes with you, their client. This is especially important for debtors who are chronically slow-paying or late in payments.
- Improves Cash Flow: With the factoring company handling the invoice’s payment, the construction company receives immediate cash flow, enabling them to manage payroll and purchase materials without delays.
- Legal Rights: Being a legal agreement, the NOA binds the debtor to pay the factoring company, reducing the risk of non-payment and securing the factoring company’s interests.
- Clear Communication: The NOA provides clear communication and payment terms with the debtor reducing confusion.
- Transparency: The NOA ensures transparency, informing the debtor of the change in payment direction, which helps avoid any inadvertent payments to the original contractor.
- Streamlined Process: It creates a streamlined process for handling payments, ensuring that the debtor is clear on who and when to pay which can prevent legal complications.
While a Notice of Assignment acts as “official” announcement of a new arrangement, it is always best to make your client aware of your working with the factoring company. Most clients understand and accept invoice factoring, but surprises are rarely welcomed, especially when money is involved.
Notices of Assignment are an indispensable tool in the factoring process for businesses like construction companies. They ensures that all parties — the construction company, the factoring company, and the debtor — are protected and aware of their roles and responsibilities. By understanding the purpose of NOAs, construction businesses can rest assured that the factoring can be implemented quickly with minimal distractions.
If you still have questions about how NOAs can protect your construction business, or other aspects of the invoice factoring process , feel free to reach out . We are glad to help.
Factoring , Newsletters
THE NOTICE OF ASSIGNMENT: A REFRESHER COURSE
Allen J. Heffner Nov 20, 2023
The Notice of Assignment is probably the single most important document for a Factor. Understanding what needs to be included in the Notice of Assignment, how to send it, and who to send it to can mean the difference between getting paid and not. Despite the fact that every Factor is (or should be) familiar with legal requirements relating to Notices of Assignment, we still find that many of our factoring clients who end up in litigation make basic mistakes relating to their Notices of Assignment. The article focuses on what information needs to be included in the Notice, who the Notice should be sent to, and how the Notice should be delivered.
What needs to be included in the Notice of Assignment?
To be effective, there is certain information that must be included in the Notice of Assignment. The Uniform Commercial Code (“UCC”) requires that the notice must:
- Notify the Account Debtor that the amount due or to become due has been assigned;
- Notify the Account Debtor that payment is to be made to the Factor;
- Reasonably identify the rights assigned; and
- Be signed by the Factor or its client.
The Notice of Assignment should also include a remittance address so the Account Debtor is informed how and in what manner the Factor should be paid.
Additionally, while not explicitly required under the current version of the UCC, Factors should include language in their Notice of Assignment that: (i) the Client has assigned all of its present and future accounts receivable to Factor; (ii) the Factor holds a first priority security interest in all of the client’s accounts receivable; and (iii) all payments owing to the client must be paid to the Factor.
Who should the Notice of Assignment be sent to?
Notices of Assignment should not be sent directly to individuals with an Account Debtor. Sending the Notice to a specific individual may lead to issues relating to the authority of that individual to receive documents on behalf of the Account Debtor. Moreover, Factors that direct Notices of Assignment directly to individuals open themselves up to arguments that the Notices of Assignment was not properly delivered. For instance, our clients that have sent Notices of Assignment to individuals have ended up in situations where the individual to whom the Notice of Assignment was addressed no longer worked with the Account Debtor or the individual was located at a different office and the Notice of Assignment was not sent to the proper location. To be safe and to avoid unnecessary issues, Factors should send the Notice of Assignment to the Account Debtor’s accounts payable department.
Additionally, some states have specialized definitions for what constitutes “notice” on behalf of a company. If there is any question as to where a Notice of Assignment should be sent, Factors should check with their attorney to determine where these should be sent.
How should the Notice of Assignment be delivered?
The crucial issue for the enforceability of a Notice of Assignment is proof of receipt by the Account Debtor, not proof of delivery. Therefore, it is good business practice to send the Notice of Assignment either certified mail or other method that provides for proof of delivery.
Many of our clients have asked about whether it is proper to deliver the Notice of Assignment via e-mail asking the Account Debtor to confirm receipt or with “read receipts” turned on. Some Factors prefer this method because it is more cost efficient.
While sending Notices of Assignment via e-mail is enforceable, we would not recommend it as a general business practice. Sending the Notice in this manner requires delivering the Notice to a specific individual, which we have discussed above can be problematic. Sometimes officers and directors of companies have assistants or other personnel manage their e-mail accounts, raising the possibility that the individual to whom the Notice was sent, never saw the e-mail, even though the e-mail was “read.”
Last, there is no requirement that the Notice be signed by the Account Debtor and returned to the Factor. Often, we see our client’s Notice include a “confirmation of receipt” line for the Account Debtor to sign and return. Sometimes, the Factor will have proof of delivery to the Account Debtor but the Notice was not signed and returned by the Account Debtor. This adds unnecessary ambiguity as to whether the Notice was actually received by the Account Debtor. Therefore, we instruct our clients not to include such requests for proof of receipt.
Who should send the Notice of Assignment?
Some of our clients that have had bad experiences with Account Debtors after delivering a Notice of Assignment have chosen to have their Client be the one to deliver the Notice of Assignment. There is no legal requirement as to whether the Factor or the Client is the correct party to deliver the Notice of Assignment. However, we recommend the Factor be the one to deliver the Notice of Assignment. This way, the Factor is in complete control of the contents of the Notice of Assignment, how it is delivered, and receives confirmation of its delivery. We have been in situations in which the Factor allowed the Client to deliver the Notice of Assignment, but the Client did not deliver the Notice of Assignment in accordance with the law, leading to avoidable litigation.
Should a Factor respond to an Account Debtors questions regarding a Notice of Assignment?
Absolutely, yes. If requested by an Account Debtor, pursuant to the UCC, a Factor must furnish reasonable proof of the assignment for the Notice of Assignment to be valid. Too often we see situations in which requests are made or questions are posed by Account Debtors that the Factor ignores, thinking that because the Account Debtor received the Notice of Assignment, nothing else needs to be done. The Factor should respond to the Account Debtor and provide reasonable proof of the assignment. These communications can also provide invaluable insight as to the relationship between the client and the Account Debtor, how and when payments will be made, and can provide the Account Debtor a sense of trust with the Factor.
A Notice of Assignment is crucial for Factors because it provides legal protection, establishes priority of interest, prevents confusion, facilitates legal recourse, and enables effective communication with Account Debtors. Without this notice, Factors may encounter difficulties in asserting their rights and collecting payments from Account Debtors, potentially jeopardizing the financial transaction.
Bruce Loren and Allen Heffner of the Loren & Kean Law Firm are based in Palm Beach Gardens and Fort Lauderdale. For over 25 years, Mr. Loren has focused his practice on construction law and factoring law. Mr. Loren has achieved the title of “Certified in Construction Law” by the Florida Bar. The Firm represents factoring companies in a wide range of industries, including construction, regarding all aspects of litigation and dispute resolution. Mr. Loren and Mr. Heffner can be reached at [email protected] or [email protected] or 561-615-5701
Bruce E. Loren · Michael I. Kean · Allen J. Heffner · Kyle W. Ohlenschlaeger · Frank Sardinha, III · Lucia E. DeFilippo
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Assignments: why you need to serve a notice of assignment
Catherine phillips.
PSL Principal Associate
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.
NOT LEGAL ADVICE. Information made available on this website in any form is for information purposes only. It is not, and should not be taken as, legal advice. You should not rely on, or take or fail to take any action based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. Gowling WLG professionals will be pleased to discuss resolutions to specific legal concerns you may have.
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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.
What's the issue?
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.
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.
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Deed of Assignment and the Notice of Assignment -What is the Difference?
In this article, Richard Gray barrister takes a brief look at the differences between a Deed of Assignment and a Notice of Assignment and the effect of the assignment on the contracting party
At the end of 2020, Elysium Law were instructed to act for a significant number of clients in relation to claims made by a company known as Felicitas Solutions Ltd (an Isle of Man Company) for recovery of loans which had been assigned out of various trust companies following loan planning entered into by various employees/contractors.
Following our detailed response, as to which please see the article on our website written by my colleague Ruby Keeler-Williams , the threatened litigation by way of debt claims seem to disappear. It is important to note that the original loans had been assigned by various Trustees to Felicitas, by reason of which, Felicitas stood in the shoes of the original creditor, which allowed the threatened action to be pursued.
After a period of inertia, Our Clients, as well as others, have been served with demand letters by a new assignee known as West 28 th Street Ltd . Accompanying the demand letters is a Notice of Assignment, by reason of which the Assignee has informed the alleged debtor of the Assignees right to enforce the debt.
Following two conferences we held last week and a number of phone call enquiries which we have received, we have been asked to comment upon the purport and effect of the Notice of Assignment, which the alleged debtors have received. Questions such as what does this mean (relating to the content) but more importantly is the ‘Notice’ valid?
Here I want to look briefly at the differences between the two documents.
There is no need for payment to make the assignment valid and therefore it is normally created by Deed.
The creation of a legal assignment is governed by Section 136 of the Law of Property Act 1925:
136 Legal assignments of things in action.
(1)Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal thing in action, of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to claim such debt or thing in action, is effectual in law (subject to equities having priority over the right of the assignee) to pass and transfer from the date of such notice—
(a) the legal right to such debt or thing in action;
(b) all legal and other remedies for the same; and
(c) the power to give a good discharge for the same without the concurrence of the assignor:
Some of the basic requirements for a legal assignment are;
- The assignment must not be subject to conditions.
- The rights to be assigned must not relate to only part of a debt, or other legal chose in action.
- The assignment must be in writing and signed by the assignor.
- The other party or parties to the agreement must be given notice of the assignment.
Notice of assignment
To create a legal assignment, section 136 requires that express notice in writing of the assignment must be given to the other contracting party (the debtor).
Notice must be in writing
Section 136 of the LPA 1925 requires “express notice in writing” to be given to the other original contracting party (or parties).
Must the notice take any particular form?
The short answer is no. Other than the requirement that it is in writing, there is no prescribed form for the notice of assignment or its contents. However, common sense suggests that the notice must clearly identify the agreement concerned.
Can we challenge the Notice?
No. You can challenge the validity of the assignment assignment by ‘attacking the Deed, which must conform with Section 136. In this specific case, the Notice sent by West 28 th Street in itself is valid. Clearly, any claims made must be effected by a compliant Deed and it is that which will require detailed consideration before any right to claim under the alleged debt is considered.
Can I demand sight of the assignment agreement
On receiving a notice of assignment, you may seek to satisfy yourself that the assignment has in fact taken place. The Court of Appeal has confirmed that this is a valid concern, but that does not give an automatic right to require sight of the assignment agreement.
In Van Lynn Developments Limited v Pelias Construction Co [1969]1QB 607 Lord Denning said:
“After receiving the notice, the debtor will be entitled, of course, to require a sight of the assignment so as to be satisfied that it is valid…”
The Court of Appeal subsequently confirmed this stating the contracting party is entitled to satisfy itself that a valid absolute assignment has taken place, so that it can be confident the assignee can give it a good discharge of its obligations
The important document is the Deed of Assignment, which sets out the rights assigned by the Assignor. The Notice of Assignment is simply a communication that there has been an assignment. The deed is governed by Section 136 of the LP 1925. It should be possible to obtain a copy of the Deed prior to any action taken in respect of it.
For more information on the claims by West 28 th Street or if advice is needed on the drafting of a Deed, then please call us on 0151-328-1968 or visit www.elysium-law.com .
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