The UCC 9-406 notice

Under UCC section 9-406 (Cornell LII, opens in a new tab), a customer who owes your business money can pay you and be done, until it receives a notice that the amount has been assigned and must be paid to someone else. After that notice, paying you no longer settles what the customer owes.

MCA funders rely on this because most advances are written as a purchase of your future receivables. Article 9 of the UCC (Cornell LII, opens in a new tab) covers sales of receivables as well as secured loans, so a funder that bought them can claim the right to collect from your customers directly.

Funders usually send notices after what they treat as a default: missed or blocked debits, a changed bank account, or another advance taken without consent. Some send them while talks are still going on, to put pressure on the business.

The notice goes around your bank account. The UCC lets a secured party notify an account debtor to pay it directly (Cornell LII, opens in a new tab), so instead of debiting what is left, the funder tries to collect from the customers who pay you, often the largest ones.

Collection like this has limits. The FTC has acted against MCA operators (FTC, opens in a new tab) for unfair collection, including seizing assets in ways their contracts did not allow.

Most customers do not want to pay twice, so many hold payment until they know who to pay. Some pay the funder. Either way, cash you counted on for payroll and suppliers can stop arriving.

The notice can also strain the relationship. Customers may ask questions about the business, and some may look for another supplier.

A customer is allowed to ask the funder for reasonable proof (Cornell LII, opens in a new tab) that the assignment was really made. Until the funder provides it, the customer can keep paying your business and be done.

Section 9-406 sets conditions. A notice has no effect if it does not reasonably identify the rights assigned, and a customer may treat it as ineffective if it says to pay the funder only part of each payment. Each state adopts the UCC with its own changes, so your state's version is the one that counts.

Move quickly, in order. The goal is to protect the cash the business needs while you find out whether the notice holds up.

Yes. A funder that has sent notices usually wants to be paid, not to run your collections. A realistic offer can cover ending the notices, releasing the lien and settling what is owed, but the funder does not have to agree to any of it.

Clear Financial Company negotiates with MCA funders as part of merchant cash advance debt relief, within our wider business debt relief work. We are not attorneys, so a question about whether a notice is valid goes to one.