What Is a Notice of Assignment — and What Will My Customer Think?

Part of our Honest Answers series — straight talk about financing a growing business.

When you start factoring, we send your customer a letter. It tells them to send your payments to us instead of to you.

We call it a first-time purchase letter. The industry calls it a Notice of Assignment. Most guys call it “that letter you send my customer,” and it’s the part they worry about most.

So let’s talk about it plain.

I own American Commercial Capital. I’ve been in factoring since 1993. I’ve signed thousands of these letters and taken the phone calls that came after. So you know where I stand.

What the letter says

It’s one page. Here’s what’s on it:

• Your company is announcing a new credit line to help you grow.
• Your receivables have been sold to us.
• Here’s where to send the check, and here’s how to wire it.
• Call Roy at 713-227-3863 with any questions.

That’s it. Nothing about your bank. Nothing about your credit. Nothing about why you called us. There is nothing in that letter your customer could use to decide you’re in trouble.

Three things about our letter

You sign it too. Our letter has two signatures at the bottom — mine and yours. You see the exact letter, with your customer’s name on it, before it goes anywhere. That means it doesn’t look like something a finance company did to you. It looks like something you did.

If you talk to any other factor, ask them one question: does my signature go on that letter? A lot of them will say no.

Checks still have your name on them. The check is made out to us “FBO” your company — that’s short for “for the benefit of.” Your name stays on the payment. That way your customer’s bookkeeper can match it up without calling anybody.

It’s addressed to Accounts Payable. Not to the owner. Not to the guy who hired you. It goes to the person who cuts checks.

Why we have to send it

Short version: until your customer gets that letter, they can keep paying you and they’re square. After they get it, they have to pay us.

That’s state law, not our rule. We file a UCC-1 too, but that’s a public filing your customer never sees. This letter is the one that actually moves the payment. Without it, we’d be buying an invoice we can’t collect — and no factor is going to hand you money on that deal.

What your customer actually does with it

Here’s what I’ve watched happen for thirty years.

Big customers — refineries, big general contractors, hospitals — have a clerk who’s seen forty of these this year. She checks it, changes the address in the computer, done. Nobody upstairs ever hears about it.

Mid-size customers usually call once. The question is always the same: “Do I send everything there now?” That’s the whole conversation.

Small shops where the owner opens the mail — that’s the only place you might get a real question. And that one’s easy to head off.

Notice who reads this letter. It’s the bookkeeper. It’s never the guy who decides whether to hire you again.

The real question you’re asking

You’re not worried about the letter. You’re worried your customer will think you’re going broke.

Straight answer: a few might wonder for a second. Most won’t think about it at all.

Factoring is everywhere in the work you do. Trucking companies factor. Staffing agencies factor. Machine shops, welders, oilfield service outfits, cleaning contractors, electrical subs. If your customer buys from small companies, they’re already paying factored vendors and don’t know it. Your letter is going to look like the last five they got. Factoring changes how you get paid. It doesn’t change how you run your business.

And think about the other side of it. Nobody ever lost a customer over a change-of-address letter. They lose customers by not showing up because they couldn’t buy material, or losing their best hands because payroll was late. That’s what a customer remembers.

Want to tell them first? Here’s how

If it’s a customer where the owner opens the mail, just call him. Twenty seconds:

“Hey, heads up — we put a credit line in place so we can take on more work. You’ll get a letter from me with a new address for payments. Nothing else changes. Same crew, same schedule.”

Say it like it’s no big deal, because it isn’t. Don’t over-explain. If you talk about it for five minutes, you’ve just told him it’s a big deal.

If a check comes to you by mistake

It happens. Their office didn’t update the file, or the check was already printed.

Send it to us that day and call to tell us it’s coming. That’s it — that’s a normal Tuesday.

What you can’t do is sit on it. That money’s ours. Spending it and telling us three weeks later is a different conversation, and it’ll break your agreement. If a check shows up that shouldn’t have, just pick up the phone.

A few cases where it’s trickier

Three situations to mention to any factor before you sign:

• Federal government work. There’s a separate process for assigning government receivables. It works, it just takes longer.
• A contract that says you can’t assign your invoices. Some big-customer contracts have that language. Show it to us up front.
• A big customer with a strict policy. Rare, but it exists. Worth finding out early, especially if one customer is half your work.

None of these kills the deal by itself. But find out on day one, not in week three.

Bottom line

It’s one page. It goes to the bookkeeper. It says you got a credit line and here’s where to send the check. It’s got your signature on it and your name on the payment.

Take twenty seconds to get ready for it and then quit worrying about it.

Want to read our actual letter before you commit to anything? Ask, and I’ll send you a copy with your company’s name on it. I’d rather you read it now than sign something you’re quiet about.

Questions about your customers specifically? Request a quote or call me at 713-227-3863. If factoring isn’t right for you, I’ll tell you that.

Roy Brooks is the founder and President of American Commercial Capital, LLC, a Houston invoice factoring company serving small businesses across Texas. He has been in the factoring business since 1993.

READ MORE FROM AMERICAN COMMERCIAL CAPITAL

Back