This article is general information, not legal advice. Whether a funder can send these letters, and whether your customers have to follow them, depends on your MCA agreement, your contracts with your customers and your state's version of the Uniform Commercial Code. If your customers have received one, talk to a business attorney before you respond.
What the letter is
The letter your customer received is usually called a UCC 9-406 notice, or a notice of assignment. It's named after Section 9-406 of the Uniform Commercial Code (UCC), the set of business-law rules that every state has adopted in its own version. The notice tells your customer that the money it owes you has been assigned to the funder, and that it should pay the funder instead of you.
The law uses three labels you'll see in the letter or hear from an attorney:
- Account debtor: your customer, the business that owes you money for work or goods.
- Assignor: you, the business the money was originally owed to.
- Assignee: the funder, which says it now has the right to collect.
A merchant cash advance is a purchase of future receivables, and many agreements also give the funder a security interest in your receivables, often backed by a UCC-1 filing. Our guide to paying off an MCA early explains that filing and how it's released. Under UCC Section 9-607, a secured party may notify your customers to pay it "if so agreed, and in any event after default." That's why these letters usually arrive after an owner has fallen behind, or after the funder says a default has happened.
Do your customers have to pay the funder?
If the notice is valid, generally yes. Before your customer receives a valid notice, it can pay you and its bill is settled. After it receives one, the law says it "may not discharge the obligation by paying the assignor." In plain terms, if your customer keeps paying you, it may still owe the funder, and it could end up paying the same invoice twice. That risk is why customers take these letters seriously, and why many simply pause payment while they work out who to pay.
Whether the funder had the right to send the letter in your case is a separate question. It can turn on what your agreement says, whether a default actually happened under its terms, and whether another lender has a prior claim on your receivables. Attorneys who handle these disputes disagree about how often MCA notices hold up. Some argue that many are sent without a sound legal basis. Others point out that the law lets a funder notify customers when the agreement allows it or after a default. That isn't a question to settle on your own, or for your customer.
What makes a notice effective
Section 9-406 sets out what a notice needs and when a customer can treat it as ineffective. Your attorney will apply your state's version, but these are the points to look for:
| Point | What Section 9-406 says | What to look for in the letter |
|---|---|---|
| Signed by you or the funder | The notice must be authenticated (signed) by the assignor or the assignee | Who sent it, and whether it's signed or issued on the sender's letterhead |
| Says the money was assigned | It must say the amount due has been assigned and that payment is to be made to the assignee | A clear instruction to pay the funder, and where |
| Identifies the rights assigned | A notice that doesn't reasonably identify the rights assigned is ineffective | Which agreement, which business and which receivables it covers |
| Asks for the full payment | If it tells the customer to send less than the full amount of an installment, the customer may treat it as ineffective | Whether it asks for all of each invoice or only part |
| Proof on request | If the customer asks, the funder must promptly give reasonable proof of the assignment. Until it does, the customer can keep paying you. | Whether your customer has asked for proof, and what the funder sent back |
A few more rules matter. A clause in your contract with a customer that bans assignment generally doesn't block the notice. Your customer keeps the defenses it has from its deal with you, such as a dispute over the work, but under Section 9-404 those defenses can only reduce what it owes. The section also works differently for customers who are individuals buying for personal or household use, and it doesn't apply to health-care insurance payments.
What to do first
1. Get a copy of every letter
Ask each customer who called for a copy of what they received, and keep a list of which customers got one and when. If a customer hasn't mentioned it, don't assume they weren't sent one.
2. Read your MCA agreement
Look for any security interest in your receivables, any clause about notifying your customers, and how the agreement defines a default. Our guide to reading your MCA contract shows where these terms usually sit.
3. Talk to a business attorney now
Bring the letters, your MCA agreement, your contracts with the customers involved and your payment history. Ask whether the notices look effective, whether the funder had the right to send them, and what you can say to your customers.
4. Contact the funder in writing
Ask what default it says happened, what amount it says is owed, and what it would take for it to withdraw the notices. Keep every reply. If you're behind on payments, our guide to what to do when you can't make your MCA payment covers your options.
5. Talk to your customers, calmly
Your customers are caught in the middle of something that isn't their dispute. Tell them you're aware of the letter and are working on it with your attorney. Don't tell them to ignore it. If the notice is valid and they keep paying you, they're the ones who risk paying twice. Your customer, not you, has the right to ask the funder for proof of the assignment, and its own accounting team or attorney can decide whether to do that.
What not to do
- Don't tell customers to ignore a notice, or to keep paying you, without your attorney's advice.
- Don't ask customers to pay into a new account or a different business to get around the notice. That can make your position much worse.
- Don't stop the funder's ACH debits in response. Under many agreements, that's a default of its own. Our guide to what to do when an MCA funder debits you twice explains why.
- Don't sign a settlement or new agreement to make the letters stop until an attorney has read it.
Getting customer payments back to you
Once things are resolved, whether by payoff, settlement or a new written agreement, your customers need to hear it from the funder, in writing. Ask that each customer who received a notice gets a signed letter releasing it and telling it to pay you again, and put that promise in the payoff or settlement terms.
The UCC has a rule on this, but it doesn't cover every case. Under Section 9-209, when nothing is owed and the funder has no commitment to advance more, a secured party must send that release within 10 days of your signed demand. The rule doesn't apply where receivables were sold outright, which is one reason to get the release written into your agreement.
How to avoid getting here
These letters usually come after missed payments, so the best protection comes earlier:
- Before you sign, read what the agreement says about your receivables and about contacting your customers, and ask the funder to explain anything unclear in writing.
- When sales drop, talk to your funder before a payment bounces, not after. Notices to customers are a step funders usually take only once a default is claimed.
- Know what every advance takes. The free Bylt Capital tracker shows every advance, from any funder, with its scheduled payment, a running balance estimate and a payoff date, so you can see a squeeze coming while you still have options. It's free, it never contacts your funders, and there's no application or credit check.
What to do next
- Collect a copy of every letter and list which customers got one.
- Read the receivables, notice and default sections of your MCA agreement.
- Take the letters and agreements to a business attorney.
- Write to the funder asking what default it claims and what it needs to withdraw the notices.
- Talk to your customers calmly, without telling them to ignore a notice, and add every advance to the free tracker so you can see trouble coming next time.
Founder and Chief Executive Officer, Bylt Capital
Daniel Morgan is the Founder and Chief Executive Officer of Bylt Capital, a direct provider of merchant cash advances, lines of credit, and equipment financing for small and mid-sized businesses. He began his career in merchant cash advance origination, where he advised business owners on funding options before taking on a team leadership role. He then moved into syndication, co-investing in advances alongside established funders, and built that into direct funding of smaller transactions. He later raised institutional capital to found Bylt Capital.
Having worked across origination, syndication, and underwriting, Daniel brings a full-cycle view of business funding. He leads Bylt Capital's mission to give business owners clear, transparent information about their financing before they commit.