The notification is important for two main reasons
To prevent the buyer from making payment to the seller and obtaining a valid discharge
To stop the buyer from using any claims or defences which he may have from other contracts.
The procedure for giving notice normally consists of two steps
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Introductory Letter
This is sent to all the buyers at the start of the factoring agreement by the IF but in the name of the seller. It advises the buyers that all their accounts payable arising from their purchases from the seller have been and will be assigned to the IF until further notice. This subject is examined in more detail in Chapter 5 of the Communication Manual together with an example of the text of a letter.
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Notice of Assignment on the Invoice
This is a text provided by the Import Factor to inform the buyers that the Import Factor is now the legal owner of the account receivable and that payment should be made only to him.
The notice is best printed on the invoice by the computer at the time of raising the invoice. Labels printed with the text (sometimes known as “stickers”) can be used but care must be taken to avoid omitting them by mistake.
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You might wish to discuss with your Legal adviser in what form and with which text you wish the assignment clause to be communicated to the buyers when you are acting as an Import Factor. See the legal circulars No. 13.1 and 13.2 (included in the Legal Manual) for further information.
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In some countries the notice of assignment is a legal requirement and without it the assignment is not valid in respect of the buyer. In all countries it is a necessary administrative procedure to assist in the collection of the A/R. See also Chapter 6 of the Communication Manual for an example of a notice of assignment.