What is noa in trucking?
An NOA is a legal agreement that informs the accounts payable that a third party will receive payments, rather than the original owner of the invoice.
Invoice factoring is a type of financing that helps companies with cash flow problems due to slow-paying invoices. Factoring transactions are not structured like a conventional business loan. Instead, a business sells its receivables to a factoring company in exchange for a payment.
In most transactions, a factoring company buys your receivables and pays for them in two installments. Your get the first installment, called the advance, shortly after selling the invoices. This installment provides immediate cash flow to your business. It usually covers 70% to 90% of the invoice.
The factor deposits the remaining 10% to 30% that was not advanced, less the cost of service, as a second installment once your client pays in full. This second installment settles the transaction. Factoring programs work as revolving lines, and clients can use them as often as needed.
One of the reasons factors offer this service to small companies is that they take a more “hands-on” approach than conventional lenders. An important part of this “hands-on” approach is notifying the end-customer that the invoices have been purchased and payments have to be remitted to the factor. This notification is done through a Notice of Assignment.
The use of an NOA is standard and common in the factoring industry. It is sent to the customer’s Accounts Payable department. The NOA advises the end-customer:
From the perspective of the factoring company, this letter is critical. In an invoice factoring transaction, you sell the intangible financial rights to your receivables. Since receivables are not physical goods, the NOA allows the factoring company to notify your customers that the financial rights to the invoice have been sold to them.
Some clients have concerns about sending this letter to their customers. This concern is entirely understandable, and factoring companies will work with you to address this concern.
Keep in mind that invoice factoring is a very common financing tool. Many small and midsize companies use it to finance operations and growth. As a matter of fact, your customer is probably aware of factoring and how it works.
Each factoring company has its preferred way of handling the NOA. Most companies suggest that the business owner tell their client that an NOA is forthcoming. This discussion gives them a chance to explain the process and address customer questions. Here are some ideas to keep in mind as you speak to clients.
a) Factoring benefits them
Using factoring benefits your customers financially. Factoring allows you to provide customers with 30- to 60-day payment terms while also offering them good service. This approach allows your customers to use their cash more effectively. Offering terms without factoring is difficult, especially if the business is growing.
b) Your company still provides services and support
You need to explain to customers that little is actually changing. Your company still provides all the services and support. They still communicate with you and your employees regularly.
c) Your company is not in trouble
Factoring does not necessarily mean that your company is in trouble. You may need to remind your customers that companies use factoring to achieve many objectives. This is true for any type of financing, including loans and lines of credit. Factoring is just a tool that smooths your cash flow.
Some companies may avoid using an NOA if they qualify for some enhanced forms of receivables financing. There are two possible alternatives.
a) Non-notification factoring
A non-notification factoring plan works just like a regular factoring plan with a couple of exceptions. The most important difference is that the customer does not receive a conventional Notice of Assignment. Your customers still send payments to a new address. However, they are not told that the address belongs to the factor. Most factoring companies that offer this service send the change of address using your regular letterhead.
To qualify for non-notification factoring, companies have to meet these criteria:
If your company qualifies for non-notification factoring, you should consider sales ledger financing instead. The qualification requirements are similar, but we believe sales ledger financing is a better solution.
b) Sales ledger financing
A sales ledger financing line operates much like a receivables line of credit. Your company can draw up to 90% of its outstanding receivables at any given time. These lines are much more flexible than a non-notification line. They operate with a borrowing certificate, so there is no need to submit a factoring schedule of accounts each time you need funds.
The finance company still handles payments. However, your customer does not get a Notice of Assignment. Instead, they get a letter indicating that the payment address has changed.
The qualification requirements are similar to the qualification requirements of non-notification factoring. We believe it is a better solution because advances are flexible, and lines usually have daily rates. This feature allows you to have better cost control. The qualification requirements include:
Last Updated on February 16, 2023
If you’re a business owner considering invoice factoring, the Notice of Assignment (NOA) may cause you some concern. What will my customers think? Why is it necessary? Can we skip sending it? Let’s address these questions to clarify what the NOA covers and put to rest any lingering apprehension.
The notice of assignment (NOA) informs your customer that a third party (bank, financing company, or factoring company) will manage and collect your accounts receivable (AR) going forward. The NOA arrives in the mail in the format of a letter, as the initial communication notifying your customers of the change in structure and process.
Tremendous growth in the use of invoice factoring across many industries has made factoring more common than ever. According to the Global Factoring Market 2016-2020 report, analysts expect factoring to grow over 10% annually for the next several years.
Many of our factoring clients work with Fortune 500 companies who simply demand longer payment terms in order to do business. Clients using invoice factoring often show an appetite for accelerating growth and more efficiently managing operations and collections.
In short, you are most likely more concerned about it than your customers. Factoring is a widely used and acceptable means for financing your business.
In a factoring relationship, a business sells the future collection of accounts receivable (AR) in exchange for cash advances. So, the asset (future AR) belongs to the third party upon completion of the work or delivery of the goods. The business receives the cash advance and the third party waits for payment by the business’ customer.
Mildred Glaze, Senior Account Manager at altLINE, explains further, “The factor sends out the notice of assignment to be sure they place their client’s customers on notice to submit all payments to the factor and not to their client. The factor will essentially become their client’s accounts receivable department, documenting invoices and payments.”
Due to the intangible nature of AR, the third party provider needs legal language showing ownership of the AR. Thus, the legal language found in the NOA minimizes the risk placed on the third party provider. Third party providers require a NOA. It is critical to the structure of the factoring relationship and protects the third party provider in the event of misdirected payments.
In the case of a redirected payment, Mildred explains, “If a payment is in inadvertently sent to the client [instead of the factoring company], then the client turns around and forwards/sends the original method of payment to the factor…We then turnaround and re-notify that particular customer to have them confirm updating the remittance in their system.”
The main points covered in a Notice of Assignment include:
By working with altLINE, your customers recognize the reliability and stability of your financing partner. Rather than receiving an NOA from an unknown entity or independent financing company, the bank’s reputation as the lender of choice strengthens your customer relationship.
Read our article on the benefits of factoring through a bank for more information or get a free quote today!
A notice of assignment (NOA) is a document that notifies your customers that your factoring company has the right to collect payments on invoices. In a factoring relationship, a business sells its invoices to a third party factoring company, which then collects payment on them. An NOA notifies your customers of this change in structure.
Trucking companies factor invoices every day. It’s a common practice in the industry to partner with a factoring company that provides cash flow so that truckers keep hauling the goods we need daily.
Factoring is the purchasing of account receivables (invoices) at a discount. The trucking company that enters into an agreement with the factor, sells its invoices for loads they hauled and then gets an advance payment (anywhere from 70-90%). The factoring company, in turn, collects payment for that invoice from the broker. Once the factoring company gets paid by the broker, it will take its factoring fee and remit the balance of the invoice to the trucking company.
A standard part of the factoring agreement is a notice of assignment (NOA) sent by the factoring company to the broker. Factoring companies usually send brokers one NOA at the beginning of their business partnership with the trucking company.
An NOA is a legal agreement that informs the accounts payable that a third party will receive payments, rather than the original owner of the invoice. In trucking, the NOA informs a broker of the trucking company’s relationship with the factor and instructs the broker to remit all payments to the factoring company instead of directly to the carrier that hauled their load.
When is there a need for an NOA release letter? An NOA release letter is sent by the factoring company to the broker when the business partnership between the factor and the carrier has been dissolved. NOA release letters are usually brief, and they may sometimes inform the broker of where to submit future invoice payments for that carrier. If a new address to remit invoice payments is available, the factor will provide it to the broker. Otherwise, it is strictly a notice of the terminated business relationship.
At Apex Capital, we pride ourselves in transparency with clients and brokers, who are our clients’ customers. If you have questions about factoring or would like more information, check out our free comprehensive factoring guide.
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