Can My MCA Funder Contact My Customers?
In limited situations, yes. If the funder filed a UCC financing statement and you default, the Uniform Commercial Code lets a secured party notify your customers to pay the funder directly, which is called a UCC 9-406 notice. It's rare, and it usually follows a serious breach.
How does a funder contact your customers?
Section 9-406 of the Uniform Commercial Code says that once an account debtor, meaning your customer, receives a proper notice that the receivable has been assigned, the customer has to pay the assignee rather than you. Funders that bought your receivables can send these notices, typically after a default. The customer then sends payments to the funder.
Why is customer contact serious?
A 9-406 notice can hurt your business relationships and your cash flow at the same time. Customers get confused, sometimes worried, and your own revenue gets redirected. Funders know it's disruptive, which is why most reserve it for defaults they can't resolve any other way.
What usually comes before customer contact?
Before a notice goes out, a funder usually tries phone calls, emails and a demand letter. If you're behind, responding early and working toward a reconciliation, modification or settlement is the best way to keep notices from going out.
Who counts as a customer?
The rule applies to account debtors: businesses and people who owe your business money on invoices or accounts. It matters most for businesses that bill customers, like contractors and service firms. Retail businesses paid at the register see it less.
Is this legal advice?
This is general information, not legal advice. Whether a notice is valid depends on the contract, the filing and your state's version of the UCC. If you receive word that a funder has contacted your customers, talk to a business attorney right away.
What should your customers do?
A customer who receives a notice usually has to follow it or risk paying twice. Some will ask you what's going on. Be honest and brief, and tell them you're working with the funder to resolve it. Customers appreciate a clear answer more than silence.
How does the notice end?
If you resolve the default with a settlement or a payment plan, ask the funder to send a written release to the customers who received notices, telling them to resume paying you. Get that commitment in the settlement agreement so it isn't forgotten.
Why do invoicing businesses carry the most exposure?
Contractors, staffing firms, wholesalers and service companies that bill on invoices are the businesses where a notice bites hardest. If that's you, keep your funder informed at the first sign of trouble. An early conversation is far less disruptive than a notice arriving at your biggest customer.
What other contact with customers happens?
Outside a proper notice, a funder generally has no reason to contact your customers. If one does and it's harming your business, write down what was said and to whom, and talk to an attorney about it.
How can Afterfirst help with this?
If you're behind on an advance and worried about a funder contacting customers, call 877-FUND-654. We'll help you understand your options, including whether a consolidation or a modification is realistic.
What else do owners ask about this?
- What should I do if I get a demand letter from an MCA funder?
- Can an MCA company sue me?
- Can I make extra payments on my merchant cash advance?
More short answers on this topic are on the after you're funded FAQ, and the MCA early payoff calculator runs the numbers for your own file.
Where do these facts come from?
Have a question we didn't answer?
Ask us on the call. Call 877-FUND-654 with any question. We call you back, usually the same business day, and we always talk with you before we shop your file.