Why funders send customer notices
Most MCA funders file a UCC-1 financing statement claiming an interest in your receivables. Under Article 9 of the Uniform Commercial Code, a party with a valid interest in receivables may, in some circumstances, notify your customers (called account debtors) to pay it directly instead of paying you.
Whether a funder had the right to send those notices depends on your agreement, whether a default actually occurred and what the notice says.
What to do
- Ask customers to send you a copy of any notice they received.
- Do not tell customers to ignore a notice until you understand your obligations. Customers who receive a valid notice may face their own risk if they keep paying you.
- Review your agreement's default and remedies sections.
- Get legal advice if the notice contains statements you believe are false or if the funder may not have had a right to send it.
How negotiation can help
Customer notices are often a pressure point that leads to a negotiated arrangement. Saldo Vita can communicate with the funder to work toward terms that stop further notices, while independent counsel handles any legal claims.
Questions
Is it legal for a funder to contact my customers?
It can be, if the funder has a valid interest in your receivables and the conditions in the agreement and the UCC are met. It may not be if no default occurred or if the notice is misleading. An attorney can assess your situation.