UCC 9-406: the letter that sends your customers’ money to your funder
Of everything in an MCA funder’s toolkit, the 9-406 notification does the most damage the fastest: one letter, and your biggest customer starts paying the funder instead of you. Here is what the statute actually authorizes, where the letters overreach, and what the first week of response looks like.
Why funders can do this at all
An MCA is structured as a purchase of your future receivables. UCC 9-406 exists so a buyer of receivables can collect what it bought: it entitles an assignee to notify your account debtors to pay the assignee directly, and a customer who pays you after receiving valid notice risks having to pay twice. That double-pay risk is why payables departments comply quickly, and why the letters are so effective as pressure even when the underlying claim is contestable.
Where the letters overreach
In practice, notices go out that are defective in ways counsel can attack: sent on positions that are current or disputed, claiming all receivables when the agreement assigned a percentage, missing the identification the statute requires, or sent by junior funders standing behind senior filings. Customers are also entitled to request reasonable proof of the assignment before redirecting anything, a right almost no one exercises unless your attorney tells them to. None of this makes the letters harmless; it makes them negotiable.
The first-week response
Move on three fronts at once. Legal: get MCA-experienced counsel reviewing the notice and the underlying agreement for defects, this overlaps with everything in our escalation-signs guide. Customers: contact affected accounts personally, calm and factual, telling them the matter is with counsel and asking them to route proof-of-assignment demands through you. Resolution: a funder deploying 9-406 letters is spending real effort, which means it will negotiate; withdrawal of the notices should be an explicit term of any settlement, alongside the UCC terminations. Firms with in-house litigation capability handle this sequence under one roof, a core reason litigation defense is a scored category in our 2026 rankings.
UCC 9-406 questions, answered
What is a UCC 9-406 notice?
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Section 9-406 of the Uniform Commercial Code lets an assignee of receivables notify the account debtor, your customer, to pay the assignee directly. MCA funders, claiming ownership of your future receivables, send these letters to your customers after default, instructing them to redirect payments to the funder.
Do my customers have to comply with a 9-406 letter?
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A valid notification puts the customer at risk of paying twice if they ignore it, which is why most corporate payables departments comply reflexively. But customers can demand reasonable proof of the assignment, and letters are frequently defective, overbroad, or sent on disputed positions. Getting counsel involved fast is how those defects get raised before your revenue reroutes.
Can 9-406 letters be withdrawn?
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Yes, and they routinely are as part of a negotiated resolution. Funders use the letters as pressure; releasing them is a standard chip in settlement talks. The damage to customer confidence is the part that does not withdraw as easily, which is why speed of response matters more than anything.
Is a 9-406 notice the same as a UCC lien?
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No. The UCC-1 financing statement is a public filing that establishes the funder's security interest. The 9-406 notification is an operational weapon built on top of it: a letter that actually redirects your cash. The lien blocks financing; the letter attacks revenue.
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