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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 And How Does It Protect Your Business?
by CapitalPlus Financial | 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 (NOA) is a legal document that signals the transfer of rights or obligations under a contract from one party to another . This transfer can involve leases, intellectual property rights, loans, or other contractual rights. For instance, if you sell your accounts receivable through factoring, a Notice of Assignment is sent to your client, notifying them that the factoring company is the new payee.
Who Sends the Notice of Assignment?
The Notice of Assignment is typically sent by the party transferring the rights, often referred to as the assignor, or in this case by the factoring company (the new owner of the accounts receivable). In factoring, it’s common for the factoring company to send the NOA to the debtor (your client), informing them that future payments should be made directly to the factoring company instead of to your business. The NOA paperwork is usually sent immediately after all agreements are signed but may be delayed by a few weeks into the process.
How Does a Notice of Assignment Protect Everyone?
- 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, trucking, or staffing services. The NOA 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 business, or other aspects of the invoice factoring process , feel free to reach out . We are glad to help.
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