When a merchant cash advance funder sends your customer a proper signed notice of assignment, UCC 9-406 says that customer can clear its bill only by paying the funder, so customers often stop paying you. Whether the notice holds up depends on what you signed and whether you are in default. Call a business attorney today, and call your customers before the funder does. Payroll is still due, and your other funders still debit daily.
Picture Travis, who runs a light-industrial staffing company in Greenville, South Carolina. He owes five merchant cash advance funders about $557,000, and together they pull $5,033 from his operating account every business day: $25,166 a week and $105,698 a month, at APR-equivalents from 63% to 205%. Those figures come from Hamilton & Merchant's published model of what a $500,000 merchant cash advance stack costs. When a slow-paying client made him miss two debits to his newest funder, that funder wrote to the payables managers at his three biggest clients, saying his invoices had been assigned and every payment should now go to the funder.
One client called Travis to ask what was going on. The other two quietly quit paying, and he found out when Friday's deposits never showed. His first instinct was to email all three, tell them to ignore the letter, and give them a new account at a different bank. I'll be blunt: that email would have made a bad week worse, and you'll see why below.
This guide is for trucking, staffing, construction, wholesale and healthcare businesses that bill other businesses or payers and wait to get paid. I'll cut to the chase after one piece of fine print: Hamilton & Merchant is not a law firm, and nothing here is legal advice. Anything touching a contract dispute, a lawsuit or a bankruptcy belongs with your own attorney.
What does a notice of assignment from an MCA funder say?
A notice of assignment is a short letter telling your customer that the money it owes you has been assigned to a funder and should be paid to that funder instead. It isn't a lawsuit or a court order, and it doesn't need to be. The Uniform Commercial Code gives a proper notice real force on its own.
Funders word them differently, but look for these parts:
- A statement that the funder bought, or took an assignment of, your receivables under an agreement.
- Payment instructions pointing to the funder's address, bank account or payment portal.
- A demand that all future payments go to the funder, sometimes until a stated balance is paid.
- A warning that paying you will not reduce what the customer owes.
Read it the way your customer's payables clerk will. Which invoices does it cover, for what amount, and does it ask for the whole invoice or a slice? Who signed it? Write the answers down for your attorney.
Then pull your contract and look for a clause that lets the funder notify your customers, and for any power of attorney that lets it sign papers in your company's name. Our guide to reading your MCA contract walks through the clauses that matter.
Can a merchant cash advance funder contact my customers?
Often, yes. Under UCC 9-607(a)(1), a secured party may notify your customers to pay it directly if your agreement allows it, and in any event after a default. So the real questions are what your contract says and whether you were actually in default when the letters went out.
If your contract calls the deal a purchase of future receivables rather than a loan, don't let that word throw you. Article 9 of the UCC covers outright sales of accounts and payment intangibles, not only loans (UCC 9-109(a)(3)), so a funder that calls itself a purchaser is still inside Article 9.
What counts as a default
Your contract defines default, and the list can be longer than you'd guess. Missed or bounced debits are the obvious item; some agreements also count changing banks, blocking the funder's debits or taking another advance. For Travis, two missed debits may be enough, depending on the wording.
Your other customers may be next
A funder that wrote to three customers can write to the rest, and the bank statements it saw in underwriting likely show who pays you. If anyone from the funder tells your customers more than where to send payment, write down who said what and when, for your attorney.
Do my customers have to pay the MCA funder?
If the notice is proper, your customers can't safely keep paying you. Under UCC 9-406(a), your customer (the law calls it the account debtor) can keep paying you until it gets a notice, signed or authenticated by your business or the funder, saying the amount due has been assigned and should be paid to the funder. After that, the only way for the customer to clear the debt is to pay the funder, and a payment to you no longer counts.
Sit in your customer's chair. If the notice is good and they pay you anyway, they may have to pay the same invoice twice. Nobody in accounts payable wants to explain that to a controller, which is why customers often comply even when they like you. The MCA glossary decodes the rest of the jargon.
Florida and New York use the same rule
Florida (Fla. Stat. 679.4061(1)) and New York (N.Y. U.C.C. 9-406(a)) carry the same rule, and both use the word "signed" for the notice. Which state's law governs a given invoice is a question for your attorney.
When a notice falls short
- A notice that doesn't reasonably identify the rights assigned is ineffective (UCC 9-406(b)(1)).
- If a notice tells the customer to send the funder less than the full amount of an installment or other periodic payment, such as only the funder's purchased percentage of each invoice, the customer can choose to treat it as ineffective (UCC 9-406(b)(3); Fla. Stat. 679.4061(2)(c)).
That second choice belongs to your customer, not to you. You can't declare a notice ineffective on their behalf.
Your customer can ask for proof
A customer that receives a notice can ask the funder for reasonable proof that the assignment was made, and the funder has to provide it (UCC 9-406(c)). That's their right to use, not yours to coach.
What will my customers' accounts-payable teams do with the notice?
Usually the safe thing for their own company: put your payments on hold, send the letter to legal or finance, and wait. Some will start paying the funder right away. Don't count on any of them to keep paying you as if nothing happened.
- Your vendor record gets flagged, and payment runs skip your invoices.
- The letter lands with people you've never met, in legal or the controller's office.
- Your day-to-day contact may not know any of it is happening.
- Payment can stay frozen until the customer is satisfied about who should get it, and that can take longer than your cash can wait.
In trucking and staffing, the clerk may have seen factoring notices before, so the letter itself may not rattle anyone. What worries a customer is what it says about you: will your workers keep showing up, your trucks keep rolling, your crew finish the job? That worry can cost you the next contract, which is why your own phone call matters.
Can a notice of assignment be challenged?
Sometimes, but that's a judgment for your attorney, not for you or your customer. A lawyer will look at what your contract covers, whether you were really in default, whether the amount claimed is right, and whether the funder perfected its interest. Nothing about the outcome is promised, and results vary.
Hold your horses before you decide the funder broke the rules. A notice can be perfectly proper while the balance in it is wrong, and shaky while the debt behind it is very real.
What the contract covers
Did you sell or pledge all of your receivables or a percentage? Does the notice reasonably identify the rights assigned, as UCC 9-406(b)(1) requires? A notice demanding every dollar of every invoice under a contract that covered a slice deserves a hard look.
Whether you were in default
If your agreement doesn't allow notices before a default, UCC 9-607(a)(1) lets the funder send them only after one. Your attorney will compare the contract's default definitions with what actually happened.
Whether the amount is right
Ask for the funder's payment history and a payoff figure in writing, and check every debit and fee against your bank statements and the contract.
Whether the funder perfected its interest
Your attorney can pull the public UCC filings against your company to see who filed, where and when, which bears on perfection and on who stands first in line. In a five-funder stack those filings can overlap. Our piece on UCC liens and MCA bank freezes explains why those filings matter.
Whether the deal was a loan or a sale
This is the big one, and courts are split. Hamilton & Merchant Research read 59 U.S. court decisions from 2017 to October 8, 2026 on whether a merchant cash advance is a loan or a true sale.
27 of 59
Court decisions that went toward treating a merchant cash advance as a loan or let a usury claim proceed, against 22 that held it a true sale and 7 that left the question for trial.
Source: Hamilton & Merchant Research, How Courts Decide Whether a Merchant Cash Advance Is a Loan, October 2026
Many of the loan-side rulings only let a claim go forward at an early stage; they are not final findings. The research also looked at the reconciliation clause, the part of your contract meant to adjust payments to what you actually take in. Where a court found a real, mandatory reconciliation right, the funder won 16 of 16 times; where the clause was discretionary or illusory, the decision went toward a loan 21 of 21 times.
The leading appellate decision, LG Funding, LLC v. United Senior Properties of Olathe, LLC, 181 A.D.3d 664 (N.Y. App. Div. 2d Dep't 2020), weighed the reconciliation provision, whether the agreement had a finite term and the funder's recourse if the merchant went bankrupt. It said those provisions suggested the funder "did not assume the risk that United would have less-than-expected or no revenues," and let the merchant's usury defense go forward. But in that same Second Department, merchants who never used the reconciliation procedure could not argue it was illusory: Apollo Funding Co. v. Dave Reilly Construction, LLC (2025) and Diesel Funding, LLC v. Build Retail, Inc. (2026). If collections have dropped, ask your attorney whether to request reconciliation in writing now, and read our explainer on the MCA reconciliation right.
One catch. Calling the deal a loan doesn't, by itself, make a notice go away, because Article 9 covers loans and sales alike and a secured party can notify your customers after a default either way. The question does matter in usury defenses and in bankruptcy.
What happens to customer notices if my business files bankruptcy?
It depends on the court and the evidence. In 2024 one bankruptcy court barred a funder from collecting the debtor's receivables and directed the customers to pay the debtor; in March 2026 another declined, for now, to do the same. Bankruptcy is a decision for you and a bankruptcy attorney, and results vary.
VPR, LLC v. Vox Funding
In this Subchapter V case, the U.S. Bankruptcy Court for the Western District of Virginia entered an interim order on June 13, 2024 barring the funder from collecting the debtor's receivables under the automatic stay. It directed the debtor's customers to pay the debtor despite the funder's payment demands, without yet deciding whether the advance was a loan or a sale. My source is the order as reproduced in "Merchant Cash Advance Loans in Bankruptcy," seminar materials hosted by that same court in 2025.
Carr's Plumbing
On March 9, 2026, the U.S. Bankruptcy Court for the District of Kansas denied, without prejudice, a debtor's motion to enforce the stay against a merchant cash advance funder that had notified the debtor's customers. The court said ownership of the receivables needed a fuller presentation of evidence in an adversary proceeding, a separate lawsuit inside the bankruptcy case. That takes time, and time is what a business with frozen receivables is short on.
10 to 2
Bankruptcy courts in 2025–2026 went toward a loan 10 times and a sale 2 times, while New York's Appellate Division in 2024–2026 held for a sale 9 times and a loan 2 times.
Source: Hamilton & Merchant Research, How Courts Decide Whether a Merchant Cash Advance Is a Loan, October 2026
In June 2026 the U.S. Bankruptcy Court for the Eastern District of Louisiana went further, holding a debtor's merchant cash advance agreements to be disguised loans under Florida, New York and Connecticut law (Crosby Tugs, L.L.C. v. Meged Funding Group, In re Crosby Marine Transportation, LLC). None of that means your case comes out the same way. Read how bankruptcy, settlement and restructuring compare, then talk to a bankruptcy attorney before the next payroll, not after it.
Can an MCA funder take my Medicare or Medicaid payments?
Not by writing to Medicare or Medicaid, on a plain reading of the federal rules, which generally bar paying that money to anyone but the provider under an assignment. No court case on a funder's notice to Medicare or Medicaid has turned up, so this is a reading of the rules, not a ruling.
- Medicare can't pay a provider's money to anyone else under an assignment or power of attorney, except to a government agency, under a court order, or to a billing agent paid a fee unrelated to collections (42 U.S.C. 1395g(c)).
- Part B payments to physicians and suppliers can't be reassigned either, with the same exceptions (42 U.S.C. 1395u(b)(6)).
- Every state Medicaid plan must bar paying anyone but the patient or the provider, with similar court-order and billing-agent exceptions (42 U.S.C. 1396a(a)(32)).
- CMS's Medicare Claims Processing Manual says a third party providing financing "cannot purchase" a provider's Medicare receivables, whatever the financing agreement says (CMS Pub. 100-04, Chapter 1, section 30.2.5).
- Medicare follows an assignment of payments only on the order of a court of competent jurisdiction (CMS Pub. 100-04, Chapter 1, section 30.2.5; 42 CFR 424.73 and 424.90).
Put together, a funder's notice to a Medicare contractor or a state Medicaid program does not by itself redirect those payments. Have a healthcare attorney confirm how that fits your billing setup.
Your deposit account and sweep orders
Once the money lands, the fight moves to your bank. The same CMS section says Medicare deposits must go to an account the provider alone controls, and that if a provider revokes a standing sweep order to a financing company, the bank honors the revocation even though it breaches the provider's agreement with that company. Read that twice: the bank honors it, and you have still breached your contract, so make that call with your healthcare attorney. These rules are about Medicare and Medicaid only; ask how your commercial insurance and private-pay receivables fit.
What if a factoring company and an MCA funder claim the same invoices?
Then two parties claim the same dollars, and your customer is stuck in the middle. Who has the better claim turns on what each agreement covers, the public UCC filings and which notices your customers got when. That's a priority fight for lawyers, and the customer may sit on the money until it's sorted out.
Picture Dale, who runs a small trucking company out of Joliet, Illinois. His brokers already pay his factoring company under a notice it sent when he signed up. After a slow winter he takes a merchant cash advance that also claims his receivables, falls behind, and the funder writes to the same brokers. Each broker's payables desk now has two letters, two sets of payment instructions and one invoice, and it may hold payment while it asks both sides for proof under UCC 9-406(c).
Dale's move is to get both agreements to an attorney fast. Did the factoring agreement allow another claim on the same receivables? Did the advance carve out invoices already factored? Factoring is a fine tool for a trucker, and a merchant cash advance can be too; using both on the same invoices is misuse. If you're already stacked, read about the MCA stacking death spiral before you sign another agreement.
Who can receive a funder's notice, and what can each one do?
Your customers aren't the only ones a funder can write to; it can also send demands to your bank or card processor, and court papers if it has sued you. Each works under different rules and at a different speed.
| Who gets it | What the funder wants | What they can do |
|---|---|---|
| Your customers | Invoice payments sent to the funder instead of you | Once a proper signed notice arrives, clear their bills only by paying the funder (UCC 9-406(a)); ask the funder for reasonable proof of the assignment (UCC 9-406(c)) |
| Your bank | A hold on money in your account, or a turnover of it | Send the paper to its legal or compliance team, which decides whether anything has to be held |
| Your card processor | A bigger share of each card batch, or all of it | Follow the agreements already on file, including any split or lockbox, while its own team reviews the new demand |
| Medicare contractor or state Medicaid program | Your provider payments sent to the funder | Follow an assignment of Medicare payments only under a court order; on a reading of the rules, a funder's notice alone does not redirect these payments |
A hold at your bank hits payroll and every funder's debit at once, so start with what to do when a business bank account is frozen. For card processors, read how lockbox and card-processor redirects work. And before you block debits or move deposits, read about stopping MCA ACH withdrawals the right way and talk to your attorney; done wrong, that move can be a default under every contract in your stack.
How does a customer notice fit into fixing the whole stack?
Treat it as proof that the whole stack needs one plan, not just the funder who sent the letters. For Travis, the payments that funder is redirecting were covering the other four funders' debits too. Handle one funder alone and you can trip defaults with the rest.
$25,166
What a five-funder stack owing about $557,000 debits every week at $5,033 per business day, before a single customer notice slows the money coming in.
Source: Hamilton & Merchant Research, What a $500,000 Merchant Cash Advance Stack Costs, October 2026
Do the math with me. At the 8.56% average net margin of U.S. public companies outside finance, profit alone covers $105,698 a month in debits only at about $1.2 million a month in revenue (same Hamilton & Merchant model, margins from NYU Stern, January 2026). Below that revenue, at an average margin, the stack was already eating payroll and tax money. Take away your biggest customers' payments and the numbers stop working for everybody, funders included.
The routes are the ones you'd weigh anyway, on a shorter clock, and results vary on each: settling with each MCA funder as a planned set, a restructuring the funders agree to, or a bankruptcy filing weighed with a bankruptcy attorney. Keep your personal guarantee in view, since its wording can put your own assets in play (see our personal guarantee guide), and don't plug the hole with a sixth advance; read about the reverse consolidation trap first.
Start with our page on merchant cash advance debt over $500,000, and read how to find a debt relief agency before you hire anyone. Then call Hamilton & Merchant at (407) 993-1416 for a free, confidential first conversation about your stack: what you owe, to whom, on what terms, and what kind of help fits. The legal work stays with your own attorney.
What should I tell my customers about the notice?
Tell them the truth, briefly, and keep them out of the middle. Don't argue the law, don't ask them to ignore the letter, and don't give them new payment instructions. Your goal is to protect the relationship while your attorney handles the dispute.
Make the call yourself, to the person who knows you. Adjust the Monday line to your business, and say the attorney line only if it's true:
"Thanks for taking my call. Your team may have received a letter from one of our funders about where to send payment on our invoices, and I wanted you to hear about it from me. We're working through it with our attorney. Please follow whatever your company's process and legal team decide; I'm not asking you to do anything different. Our people will be on your job Monday like always, and if anything changes on our end, you'll hear it from me first. Who should I keep in the loop?"
Notice what isn't in there: no "the letter is fake," no "pay us anyway," no new bank account. Travis's first draft had two of the three. Telling a customer the letter is bogus? That dog won't hunt. Their legal team decides what the law requires of them; if they ask you a legal question, offer to put your attorney in touch with theirs.
Do this
- Call a business attorney the same day the first notice surfaces.
- Get a copy of every notice, with who sent it, who got it and when.
- Call your biggest customers yourself, before the funder does.
- Keep doing first-rate work for every customer who got a letter.
- Plan for the whole stack, not just one funder.
Never do this
- Never ask a customer to ignore a notice.
- Never ask a customer to pay into a new or different account, or change your invoice remit-to to get around a notice.
- Never tell a customer the notice is invalid or illegal.
- Never block debits or move deposits without your attorney's advice.
- Never ignore court papers if a lawsuit follows.
What to do in the first 48 hours
Get your ducks in a row, in this order. None of it requires winning an argument.
- Collect a copy of every notice, with the date each customer got it and any calls they took from the funder.
- Call a business attorney the same day and send the notices, every merchant cash advance contract and your payment history. Add a healthcare attorney if you bill Medicare or Medicaid, and a bankruptcy attorney if bankruptcy is on the table.
- Call your biggest customers yourself with the script above, starting with any the funder hasn't reached.
- Find the clauses on notification, power of attorney, default and reconciliation, plus your personal guarantee.
- Map the next two weeks of payroll and every funder's debit, and run the stack's numbers in the MCA calculator.
- Sign nothing new until a lawyer reads it. If you've been sued, read our MCA lawsuit survival guide today.
- Call Hamilton & Merchant at (407) 993-1416 for a free, confidential first conversation about your whole stack and the right kind of help for it.
When it's over, by payoff, settlement or court order, make sure every customer who got a notice also gets a written release from the funder pointing payments back to you, and that the funder's UCC filing comes off the record; see our guide to getting a UCC lien removed after payoff. Until then, the ball's in your court.
Questions and answers
Can a merchant cash advance funder contact my customers?
If your contract assigned or gave the funder rights in your receivables, it may send your customers a notice telling them to pay it instead of you. Whether a particular notice is valid depends on the contract and the facts, so have a lawyer review it right away.
Do my customers have to pay the MCA funder?
Under UCC 9-406, once a customer receives a proper notice of assignment, it can discharge what it owes only by paying the party named in the notice, which is why customers usually comply. A lawyer can tell you whether the notice can be challenged.
Can an MCA funder take my Medicare or Medicaid payments?
Generally not with a notice alone. Federal law bars Medicare and Medicaid from paying a provider's claims to anyone else under an assignment, except to a government agency, under a court order or to certain billing agents, and the CMS claims manual says a financing company cannot purchase a provider's Medicare receivables. The funder can still pursue the business under its contract, so have a healthcare attorney review any notice right away.
A funder writing to your customers? Call before you lose the account.
Call Hamilton & Merchant at (407) 993-1416 for a free, confidential first conversation about your stack, or send us a message. No pitch and no obligation.