Many businesses that are underserved by banks - such as startups and those engaged in international trade - are turning to alternative funding solutions, such as invoice factoring, to access liquid capital, reaping the rewards in speed, efficiency, and simplicity. However, each of these financial services includes documentation to ensure a smooth process and to avoid relationships or contracts breaking down. For example, in an invoice factoring agreement, the finance provider must issue a 'notice of assignment'.
In this guide, Stenn explains what a notice of assignment is and its role in an invoice factoring agreement.
What is a Notice of Assignment (NOA)?
A notice of assignment is issued in an invoice factoring agreement - in which an intermediary provider buys a company's accounts receivable and assumes responsibility for chasing payment from the debtors.
In this agreement, the factoring company must advise each debtor that it has taken ownership of the right to collection.
A notice of assignment (NOA) is the legal document presented to the owing party, proving that the invoice factoring company is eligible to assume ownership of debts owed to their client. It's a legal agreement that informs accounts payable that a third party will receive invoice payments instead of the original invoice owner.
What Is Included in an NOA?
A notice of assignment (NOA) is a legal document that must be drafted in a certain format, with several key elements that must be included. These are essential in providing the terms, contract information and stipulations of the debts being bought:
- Proof of Assignment: All notices of assignment must include proof of debt ownership. This must include a warning that accounts payable shall now be directed to a third party, who that third party is and the accounts that need to be paid.
- Address: The notice of assignment must include a new payment address associated with the factoring provider.
- Liability Warning: An explanation and warning of the parameters for customer liability in the event of a misdirected payment and the repercussions for missed payments.
Why Is an NOA Important in Factoring?
A notice of assignment is important in factoring as it gives the debtor a clear outline of whom further payments will be sent to, and the third party now involved in taking over debt liability.
It also provides a factoring company with proof that they now have ownership over those liabilities. This allows for smooth and effective cross-party communication and outlines the responsibilities of both parties in binding legal terms.
This represents an important part of the invoice factoring process - as the exporter signs over ownership of its invoice, allowing it to continue offering attractive delayed payment terms to importers without risking bad debt or being unable to meet its own accounts payable obligations. The importer simply has to amend payment details when paying the invoice, with no further obligations or expectations.
Plus, an NOA is one of only two documents that a client needs to sign to qualify for invoice factoring with Stenn - and this process is fully online, making it easy to apply in just minutes.
For more information on invoice factoring and the process of applying for finance with Stenn, check out our helpful video.
How Will It Affect Business?
When a notice of assignment has been issued, the invoice factoring company takes control of the debts as a third party, and the previous owner of those debts receives an advance on owed payments quickly.
The significant consideration for any company accessing invoice factoring - and therefore notice of assignment - is the fees associated with the service. Invoice factoring providers buy customer invoices at a slight discount, meaning the client doesn't receive the full invoice amount owed.
No major aspects of the debt change for the owing party, which simply amends the company to which it submits full payment of its accounts payable. However, some stipulations of mispayments may change as may the terms by which repayments can be enforced.
This includes the supplier-buyer relationship, which remains unchanged. Invoice factoring services simply allow the buyer to enjoy longer payment terms while the supplier gets immediate access to liquid capital, which it can invest in improving its offering long-term.
Access Invoice Factoring with Stenn
Are you engaged in overseas trade with delayed payment terms? Do you need a liquid capital injection to help cover your own accounts payable in the short term or to fund business growth? Simply submit your unpaid invoices for an instant working capital boost.
Stenn finances invoices for hundreds of small and medium-sized importers and exporters with manageable payment terms. And we only require two documents to be signed to qualify for funding, so we don't need to see your credit score.
Apply for financing with Stenn today or find out about the other financing options available to your business in our Resource Hub - including guides to:
About the Authors
This article is authored by the Stenn research team and is part of our educational series.
Stenn is the largest and fastest-growing online platform for financing small and medium-sized businesses engaged in international trade. It is based in London, provides financing services in 74 countries and is backed by financial giants like HSBC, Barclays, Natixis and many others.
Stenn provides liquid cash to SMEs within the global financial system. On stenn.com you can apply online for financing and trade credit protection from $10 000 to $10 million (USD). Only two documents are required. No collateral is needed and funds are transferred within 48 hours of approval.
Check the financing limit available on your deal or go straight to Stenn's easy online application form.
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