notice of assignment what is it

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.