UCC 9-406 Notice of Assignment

What a Notice of Assignment Does

The notice of assignment tells the seller's customer, the account debtor, that the right to payment has been assigned and that payment must now be made to the factor. Until the account debtor receives an effective notice, it may pay the seller and be discharged. After it receives an effective notice, a payment to the seller generally does not discharge the assigned obligation.

That rule comes from UCC § 9-406(a), adopted in Illinois at 810 ILCS 5/9-406(a): after receipt of the notification, the account debtor may discharge its obligation by paying the assignee and may not discharge it by paying the assignor. The rule is subject to the statute's qualifications, including requests for proof, the account debtor's contract defenses, and exceptions for certain types of receivables. It is the reason a factor may be able to recover from a solvent account debtor even after the seller has diverted a payment.

Requirements for an Effective Notice Under § 9-406

The statute sets a short list of requirements, and each one is a point where a careless notice can fail. The current Illinois version of § 9-406(a) uses the word "signed," following the 2025 amendments that replaced the older "authenticated" terminology.

• It is signed by the seller as assignor or by the factor as assignee; a qualifying electronic signature can satisfy that requirement under 810 ILCS 5/1-201(b)(37)
• It states that the amount due or to become due has been assigned
• It directs that payment be made to the factor, with exact remittance instructions
• It reasonably identifies the rights actually assigned, which may be specified invoices or an identified class of present and future accounts, depending on the purchase structure

Section 9-406(b) makes a notice ineffective if it does not reasonably identify the rights assigned, and gives the account debtor options when a notice directs payment of less than the full amount of an installment. A notice should not claim "all present and future accounts" for a program that purchases only selected invoices. In Lendr Finance, LLC v. Medefis, Inc., 744 F. Supp. 3d 860 (N.D. Ill. 2024), a federal court applying Nebraska law accepted a present-and-future-accounts notice at the pleading stage and rejected the argument that invoice numbers, dates, and amounts are always required. That decision is persuasive, not controlling Illinois authority.

Delivery to the account debtor's payables department is sound practice, not a separate statutory element. Deliver the notice through a channel reasonably calculated to reach the account debtor's responsible personnel, and preserve evidence of receipt.

Acknowledgments, Verifications, and Defense Waivers

The statute does not require the account debtor to sign anything; receipt of an effective notice is enough. A signed acknowledgment from the account debtor is nonetheless valuable evidence of receipt and of the payment instructions communicated. Its authenticity, the signer's authority, its scope, and its timing can still be disputed, so it should be kept with the transmittal and any reply.

An acknowledgment of receipt is not the same document as an invoice verification, an estoppel certificate, or an agreement not to assert defenses. Section 9-404(a) preserves the account debtor's contract terms and defenses unless an enforceable agreement provides otherwise, and § 9-403 addresses agreements not to assert defenses, including requirements of value, good faith, and notice, with exceptions. In AmeriFactors Financial Group, LLC v. University of Chicago, 619 F. Supp. 3d 842 (N.D. Ill. 2022), a signed verification letter did not establish the separate contract the factor alleged. Any verification or waiver document should be separately evaluated for authority, scope, consideration where required, and enforceability.

When a Payment Goes to the Seller After Notice

When an account debtor that has received an effective notice pays the seller anyway, that payment generally does not discharge the assigned obligation under § 9-406(a), and the account debtor may remain obligated to the factor for the assigned receivable. The question is whether the earlier payment discharged the obligation, not whether the factor holds a separate right to be paid twice.

Our demand to an account debtor in that position is built on the documents. It identifies the purchased invoices and the purchase records, attaches the notice of assignment and evidence of receipt, attaches the remittance records showing where payments went, and explains § 9-406 in plain terms. It also accounts for any defenses the account debtor has raised under the underlying contract.

Changed or conflicting payment instructions require immediate verification. Where the seller itself redirects payment, a payment to the seller after effective notification generally does not discharge the assigned obligation. Where an impostor or compromised email account is involved, responsibility must be evaluated under the assignment documents, the payment facts, and applicable law. In every case, bank-account changes should be verified through a previously established telephone number or other trusted channel, not the contact information in the change request. For the full recovery process, see factoring collections and recovery.

Anti-Assignment Clauses and Requests for Proof

Account debtors sometimes resist a notice by pointing to a clause in their own contract that prohibits assignment or requires consent. For ordinary commercial accounts, § 9-406(d) generally makes contractual restrictions on assignment of the payment right ineffective. Exceptions, federal law, and special receivable rules must still be checked, and assignment does not eliminate the account debtor's underlying contract defenses.

The account debtor's statutory protection is § 9-406(c). It may request reasonable proof that the assignment was made, and until the factor seasonably furnishes that proof, the account debtor may pay the seller. Respond promptly with the executed purchase or assignment provisions of the factoring and security agreement, the applicable purchase schedule or invoice-level purchase record, and evidence connecting the disputed accounts to the assignment. A UCC filing may corroborate the financing relationship but does not, by itself, establish the purchase of particular invoices.

Defenses the Account Debtor May Still Raise

The factor takes the account subject to the account debtor's rights under § 9-404. Defenses arising from the underlying transaction, such as defective work, incomplete performance, or a contractual backcharge, may reduce what the account debtor owes. Other defenses and claims against the seller are preserved only if they accrued before the account debtor received the notice. Notice changes the proper payment recipient; it does not establish that the work was performed, that the invoice was approved, or that the full invoiced amount is payable.

That is why we review the underlying contract and performance records before sending a demand. Where the seller submitted invoices for work it did not perform, breach-of-warranty or guaranty remedies may be available against the seller and its personal guarantors, depending on the agreement and the scope of each guaranty.

Receivables Subject to Different Rules

This discussion concerns ordinary commercial accounts. Section 9-406 does not apply in the same way to every payment right. Under current § 9-406(i) and (l), health-care-insurance receivables are excluded from the section, and controllable accounts and controllable payment intangibles are excluded from subsections (a), (b), (c), and (g). A digitally transmitted invoice is not automatically a "controllable account"; that term has a specific definition in § 9-102(a)(27A).

Government receivables, instruments, chattel paper, payment intangibles, and consumer obligations can also be subject to different rules, including federal assignment restrictions. Programs that purchase those receivables call for specialist review before the first funding.