A Notice of Assignment is a letter that a factor will send to a customer that you choose to factor. The notice lets your customer know that the receivable has been assigned and that all future payments will need to go to the factor until the assignment is released. The Notice of Assignment contains other clarifying information for your customer. It will state how the check needs to be made out and when payments need to be mailed (or
instructions for ACH payments to a specific bank account). It will also state how the assignment is to be dissolved. In the event you want to discontinue factoring a specific account or stop factoring all together, the notice will detail who can release the assignment. The notice of assignment release will only be valid when coming from the factor’s office. The client cannot release the assignment, it can only be released by the factoring company.
If you have already worked with a factoring company, then you have probably heard the term Notice of Assignment (NOA) before. There can be so much paperwork involved with the operation of a small business these days. It can be hard to keep up with the times and know what everything is.
For example, a notice of assignment (NOA) is actually a very common document utilized in the trucking industry. It’s ideal for companies using a factoring transaction service because a factoring fee will pay them on the load in advance.
From there, the factoring company will be responsible for collecting payment for the service from the customer. Today, we will be taking a deeper look into the Notice of Assignment to better understand the importance of NOAs and why we need them.
As one of the industry leaders, TAFS assists trucking companies to increase cash flow with some of the lowest factoring rates in the industry and 1-Hour Advance option.
How Does an NOA Work?
Once a factoring company has paid the client for the load, it is important that the debtor knows that the money they owe is now due to another party. This official notification is delivered via a Notice of Assignment. It will be sent out to the debtor as a way of informing them that their payments must now be remitted to the factoring company instead of the carrier.
Why is an NOA Important?
An NOA is a legal document that acts as a way of notifying the debtor about who they need to pay. When a carrier works with a factoring company, the TAFs Factoring carrier will be paid in advance by the factoring company, so it is important that the debtor is informed of the presence of the third party that will now be managing that company’s accounts receivable (AR).
An NOA can also ensure that the debtor understands there’s a third party that will be collecting payments from them on behalf of the carrier. Notifying the debtor of this change will make it more likely to avoid payments being sent to the wrong party as well as conflicts and violations of the factoring client agreement.
What Is Covered in an NOA?
In a standard Notice of Assignment, you will find legal forms stating that the assignment of accounts receivable of the business has been assigned to a third-party provider. As such, payments are now payable directly to them.
The NOA will include an updated address of the third party so that the debtor knows where to send any future payments, as well as the third party’s phone number and a statement letting the customer know that he or she will be held liable in the event of a misdirected payment.
Will Factoring Affect My Work With My Client?
Working with a factoring company should not negatively impact any work that you do for your clients. The truth is that factoring is extremely common these days and in the larger picture, most business owners work with some form of a lender.
What you can do on a personal level to avoid any confusion or worry is to simply assure your customers that invoice factoring will not affect the service you are providing to them and they can continue to expect the same level of service and attention in working with you.
What Will Customers Think When They Receive an NOA?
Nowadays, a large percentage of companies use factoring or some sort of third-party financing option to help keep their operations flowing smoothly from one invoice payout to the next. This is often a display of good business management and dependability in the eyes of your clients. By taking control of your company’s finances, you’re letting them know that you are serious about your business and you plan to be around for years to come.
Is There a Financing Option That Will Not Send an NOA?
Select factoring companies may offer what is known as a non-notification factoring plan in which a conventional deed of assignment is not used. This plan is not often used because it leads to unnecessary confusion, which often results in payments being sent to the wrong party.
This happens because no matter what, the debtor is still required to mail the payment to the factoring company, but instead of an NOA being issued and making this clear, the company’s letterhead is included.
Example of an NOA
An NOA is often used in circumstances where a trucking company is utilizing a factoring company to manage their receivable financing for them. The Notice of Assignment is sent to the debtor with clear notification that the accounts receivable of the company they are doing business with are being managed by a third party.
It will properly advise the remittance address for their payments moving forward. With this official notice being received it is now up to the debtor to comply and update their system to make sure payments are processed to the correct party.
4 Things To Consider When Factoring
If you are going to use a factoring company here are some things you may want to consider regarding the NOA.
Responsibility
The responsibility lies with both the carrier and the factoring company. The factoring company will send NOAs to many debtors but it is hard for a factoring company to know every customer a carrier has or will work with. For this reason, the responsibility also falls on the carrier as well to notify all of their customers of the new payment conditions.
Requirements
The Notice of Assignment is required to be sent out so that the customer is fully aware of who they are legally obligated to pay. Without this notice, many payments would be sent to the incorrect party causing many issues that would deeply complicate the process.
If the trucking company accepts payment from the customer when it should have gone to the factoring company, the trucking company would be in violation of the contract and could be assessed additional fees or charged with fraud.
Timing
Being notified of a factoring company being used is not a bad thing. Utilizing a factoring company allows the carrier the ability to maintain operations within the windows of payment terms on the loads which may not pay out for 30 days or 60 days. In some cases, it might even be 90 days.
Contracts
Most factoring company contracts require carriers to submit every single invoice to minimize the likelihood of causing confusion. If the debtor has to change who they pay for different invoices, the odds are that errors will occur and payment will be sent to the wrong place. That is also why debtors don’t change who they pay after receiving an NOA unless they have an official release letter from the factoring company. This is a red flag for a carrier trying to commit fraud.
Receiving an NOA Is Actually a Good Thing
In conclusion, we now know that receiving an NOA will inform the recipient that the carrier they used is collecting money via a factoring company or other third-party business. As such, they will not be managing their accounts receivable. This means they are taking their business seriously and making moves to ensure their company will be around for years to come, and with the ability to grow and expand.