UCC 9-406 Notice: Meaning in a Merchant Cash Advance
A UCC 9-406 notice is a letter a funder sends to a business's customers telling them to pay the funder directly instead of the business. It relies on section 9-406 of the Uniform Commercial Code, which covers paying an assignee of receivables.
What does UCC 9-406 notice mean?
When a funder buys your receivables, it steps into your shoes as the party owed that money. Section 9-406 says that once a customer (called the account debtor) gets proper notice of the assignment, paying you no longer counts. The customer has to pay the funder or risk paying twice. That is why these letters get attention fast.
Why does UCC 9-406 notice matter to your business?
A 9-406 letter usually arrives after a default or a serious dispute. It goes to the people you invoice: general contractors, distributors, insurance payers, government agencies. Even when the amount is small, it tells your best customers that you are in a fight with a funder, and some of them hold every payment until the lawyers sort it out. Cash stops at exactly the moment you need it.
What if customers receive one?
- Get a copy of the letter and the date each customer received it.
- Read your contract's default and notice clauses before you reply.
- Talk to a business attorney quickly. Customers who pay the wrong party after notice take on risk, so they won't simply ignore it.
How do you keep it from happening?
Most 9-406 letters follow missed payments with no contact. Asking for reconciliation or a modification early keeps the dispute between you and the funder instead of reaching your customers.
Where will you see it?
In the merchant agreement's remedies section, which often lists notifying account debtors as a right after an event of default. In practice it shows up as a phone call from a customer asking who they are supposed to pay.
Which terms are related to UCC 9-406 notice?
- Events of default
- Reconciliation clause
- Payment modification
- Future receivables
- Can my MCA funder contact my customers?
The full list is in the glossary. Owners ask about this in How do I find UCC filings on my business?.
A term on your offer you don't recognize?
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