MCA Contacting Your Customers: What Business Owners Need to Know

When an MCA funder sends a notice of assignment to your customers, it may invoke U.C.C. § 9-406, which can require a customer who owes your business money to redirect payment to the funder without a lawsuit or court order. In practice, this is what "MCA contacting your customers" means: a legal mechanism that can reroute your cash flow before you can challenge the funder's position. Whether the notice is effective depends on the assignment, the notice itself, and the applicable law.

The funder's right to contact your customers can be real. It is also conditional, and the notice can be defective. The three questions that determine your options: Was the default validly triggered, if default is required under the agreement? Does the notice meet the legal standard under U.C.C. § 9-406(b)? Would the underlying agreement survive a recharacterization challenge? A firm that answers only one of those questions cannot give you the full picture.

Can an MCA Company Legally Contact Your Customers?

Yes. Under U.C.C. § 9-406, an MCA funder holding an assignment of your receivables can send a notice of assignment directly to your customers, instructing them to pay the funder rather than you. A lawsuit or court order is not necessarily required. The notice must reasonably identify the rights assigned, and the funder must have the rights it claims to enforce.

Under U.C.C. § 9-406(a), once a customer receives an effective notice of assignment, that customer generally cannot discharge its obligation by continuing to pay the original merchant. Payment to you after proper notice might not satisfy the debt. The customer could face a second payment demand from the funder. That is the mechanism's operational force: it can affect your customers before a court rules on the dispute.

The notice right flows from the MCA agreement's assignment of receivables. Many MCA agreements contain an assignment clause transferring the merchant's right to collect specified receivables to the funder. That assignment is the legal foundation. A UCC-1 financing statement can provide public notice of a claimed security interest, but filing alone does not establish every right the funder asserts.

What Is a Notice of Assignment?

A notice of assignment is a written notification from an assignee of receivables, here, the MCA funder, sent directly to an account debtor, instructing that debtor to redirect payment to the assignee rather than to the original creditor.

Under U.C.C. § 9-406(b), the notice must reasonably identify the rights assigned. A vague notice, one that overstates the funder's rights, or one that fails to identify the assigned receivables adequately, can be challenged. Whether a defect prevents the notice from becoming effective depends on the circumstances.

What Is an Account Debtor?

An account debtor is the person or entity obligated on a receivable. In the MCA context, that can be the merchant's customer who owes money for goods or services already delivered.

The account debtor is the direct target of a U.C.C. § 9-406 notice. The funder's claimed collection rights can reach these customers, not just the merchant. That is what makes this mechanism so disruptive: the funder can interfere with incoming cash flow by contacting your customer base directly, even before a court has ruled on whether the default was valid or the agreement is enforceable.

Does New York Law Apply Even If My Business Is in Another State?

Many MCA agreements contain New York choice-of-law and forum-selection clauses. Those provisions can affect which law governs a dispute and where a lawsuit is filed, but they don't automatically mean New York law governs every MCA enforcement issue.

The agreement, the nature of the assignment, the location of the parties, and applicable UCC choice-of-law rules all matter.

J. Singer Law Group can work with businesses located anywhere in the United States on MCA issues.

If Singer Law Group is representing a business in an MCA lawsuit, that lawsuit must be filed in New York. The business itself can be located anywhere in the country.

A business owner in Texas, Florida, California, or another state facing an MCA lawsuit filed in New York can therefore seek representation from Singer Law Group for that New York litigation.

What Triggers an MCA Company's Right to Contact Your Customers?

Default under the MCA agreement is a common contractual trigger for customer-contact enforcement. MCA default definitions often extend far beyond a missed payment, and merchants are frequently unaware a default has been declared until enforcement has already begun.

Common default triggers include missed or insufficient ACH withdrawals, changing the merchant's bank account without funder consent, taking on additional financing without authorization, and other events defined in the agreement.

Some agreements also identify bankruptcy filings as events of default. Whether those provisions are enforceable, and what collection activity is permitted after a bankruptcy filing, requires separate analysis under bankruptcy law.

The funder's contractual enforcement rights must also be distinguished from any assignment rights that exist independently of default.

The Role of the UCC-1 Financing Statement

A UCC-1 financing statement is a public filing that gives notice of a claimed security interest in the merchant's receivables or other collateral.

Filing is a common way to perfect security interests in receivables, though the requirements depend on the collateral and transaction.

A filed UCC-1 can alert other creditors to the funder's claimed interest. It does not, by itself, establish that the funder owns every receivable or has an immediate right to redirect customer payments.

Search the appropriate UCC filing database to identify existing filings against your business.

For a registered business entity, that generally means starting with the state where the company was organized, not automatically New York. Check other filing jurisdictions when circumstances warrant it.

A broad UCC-1 covering "all assets" or "all receivables" signals that the funder claims an interest in substantial business property. First, know what was filed, when it was filed, and what the underlying agreement covers.

When Is a Notice of Assignment Legally Defective?

Not every notice sent to your customers is legally effective.

U.C.C. § 9-406 requires an effective notification of assignment to identify the rights assigned reasonably. A notice that fails this standard can leave your customer without a legal obligation to redirect payment based on that notice.

Defects counsel looks for include a notice that fails to identify the assigned receivables, overstates the funder's rights, or demands payment beyond the assignment's scope.

Counsel should also examine whether the funder has a valid assignment and whether it has satisfied any contractual conditions to enforce.

A defective or lapsed UCC filing can raise separate questions about the funder's security interest and priority, although a filing defect does not automatically invalidate an otherwise effective assignment notice.

A defective notice does not automatically end the problem. The funder can attempt to correct it and send another notice.

But identifying a defect gives counsel a basis to challenge the demand, communicate with affected customers, negotiate, or pursue other available remedies.

Evaluate the notice immediately, not after customers have already redirected substantial payments.

How Confessions of Judgment Accelerate Customer-Contact Enforcement

A confession of judgment can let an MCA funder obtain a judgment without the ordinary lawsuit process, provided the document and filing meet applicable legal requirements.

A judgment can give the funder access to enforcement tools, including third-party information requests, that go beyond an assignment notice.

A confession of judgment is a document in which a party authorizes entry of judgment under specified conditions.

In New York, CPLR § 3218 governs this mechanism and includes restrictions affecting certain out-of-state parties.

Not every MCA confession of judgment is enforceable, and counsel should review the document, filing history, parties, and applicable restrictions before accepting the funder's position.

For more on how confessions of judgment work and how they can be challenged, see the firm's analysis of confession of judgment in MCA agreements.

Post-Judgment Enforcement Tools That Reach Your Customers

Once a judgment is entered, the funder can gain access to enforcement tools that reach beyond the merchant:

• Information subpoenas under CPLR § 5224: Can be directed at third parties, including customers and business relationships, to obtain information about assets and receivables owed to the merchant.

• Restraining notices under CPLR § 5222: Can restrict transfers of qualifying property or debts in the possession or custody of a person served with a valid notice, subject to statutory requirements and limitations.

• Judgment-debtor examinations: Can compel disclosure of business relationships, assets, and other information relevant to enforcement.

A motion to vacate a judgment under CPLR § 5015 can be available depending on the facts.

See how to fight a confession of judgment in New York for the procedural framework.

Time limits and enforcement risks matter. Act promptly.

Three Mistakes That Make the Situation Worse

These are the errors that can turn a serious collection problem into a much more difficult one:

• Instructing customers to disregard the notice before consulting counsel. Once an effective U.C.C. § 9-406 notice is delivered, the account debtor generally must pay the assignee to discharge the covered obligation. A customer who continues paying you after proper notice can remain liable to the funder for the same amount. Do not tell customers to ignore the notice without having an attorney review it first.

• Assuming the default was validly triggered without reviewing the agreement. Default definitions in MCA agreements vary significantly. The funder's declaration of default does not prove the contractual requirements were met. Review the agreement's exact language against what actually happened. An improperly declared default can support a defense to enforcement when default is a condition of the funder's claimed remedy.

• Treating the notice as final without evaluating whether it meets the U.C.C. § 9-406 standard. The notice must reasonably identify the rights assigned. Some notices are drafted broadly or imprecisely. A notice that overstates the funder's rights or fails to identify the assigned receivables adequately can be challenged. You should also review questions involving the underlying assignment or UCC filing. Raise those issues; don't ignore them.

Can Bankruptcy Stop an MCA Company From Contacting Your Customers?

Filing for bankruptcy generally triggers the automatic stay under 11 U.S.C. § 362(a), restricting many collection actions against the debtor and property of the bankruptcy estate.

That protection can affect an MCA funder's efforts to collect receivables or contact customers for payment, depending on the nature of the funder's rights and the property involved.

The stay generally takes effect when the bankruptcy petition is filed.

Whether it restricts a funder's pre-existing assignment rights depends on the agreement, the receivables, and whether those receivables are property of the bankruptcy estate.

A funder with a perfected security interest can retain a secured claim in bankruptcy, but enforcement depends on applicable bankruptcy restrictions and court orders.

In appropriate circumstances, violations of the automatic stay can result in court remedies or sanctions.

Chapter 11, Subchapter V, and Chapter 7 Options

The right bankruptcy chapter depends on the business's financial position and goals:

• Chapter 11 bankruptcy lets a business reorganize, propose a plan, and address MCA obligations through a court-supervised process.

• Subchapter V bankruptcy provides a streamlined Chapter 11 process for eligible small-business debtors, subject to statutory debt limits and other requirements.

• Chapter 7 provides a liquidation process. A trustee generally takes control of nonexempt estate assets, including qualifying receivables, while bankruptcy law addresses secured creditors' rights.

J. Singer Law Group handles business bankruptcy and restructuring matters through attorneys admitted in the relevant jurisdictions.

Jeb Singer clerked for Judge Stuart M. Bernstein in the Southern District of New York. Ira Reid previously served as a restructuring partner at Baker McKenzie for approximately two decades and clerked for Judge Cecelia H. Goetz in the Eastern District of New York.

That experience allows the firm to evaluate MCA enforcement problems alongside the business's restructuring options.

The Recharacterization Question: Does the Funder Even Have a Valid Assignment?

If a New York court determines that an MCA operates as a disguised loan rather than a genuine purchase of receivables, the funder's contractual rights and available defenses can change significantly.

That finding can affect the agreement's enforceability and the funder's claimed right to collect receivables directly from customers.

New York courts apply the framework discussed in LG Funding, LLC v. United Senior Properties of Olathe, LLC, 181 A.D.3d 664 (2d Dep't 2020), examining three factors:

• Whether the agreement provides meaningful reconciliation of payments based on actual receivables
• Whether repayment has a finite, fixed term
• Whether the funder has recourse against the merchant regardless of revenue

An agreement that operates like an unconditional repayment obligation can be treated as a loan rather than a true receivables purchase.

But recharacterization does not automatically eliminate every security interest or assignment. Receivables can also secure a loan, so counsel must examine the actual agreement and applicable law before determining whether the funder has a valid U.C.C. § 9-406 notice right.

Recharacterization can also implicate New York's criminal usury statute, N.Y. Penal Law § 190.40.

If a transaction is legally treated as a loan and violates applicable usury restrictions, its enforceability can be challenged.

The outcome depends on the transaction's terms, the parties, the effective interest rate, and the applicable law.

For the MCA defense strategies that flow from recharacterization analysis, the firm's practice page provides additional information.

What to Do in the Next 72 Hours

Act immediately. The enforcement process can move quickly once the funder begins contacting customers.

1. Do not instruct customers to ignore the notice without first consulting counsel.
2. Obtain a copy of the notice the funder sent and compare it with the assignment provisions in your MCA agreement.
3. Determine whether a valid default occurred under the agreement's defined terms, rather than simply accepting the funder's description of events.
4. Search the appropriate UCC filing jurisdictions for financing statements against your business. For registered entities, start with the state of organization and check additional jurisdictions when appropriate.
5. Assess whether the MCA could be recharacterized as a loan under the LG Funding three-factor framework and what that would mean for the funder's claimed rights.
6. Evaluate whether MCA restructuring or bankruptcy protection is appropriate given your broader financial position.

If the funder's communications to your customers include false or misleading statements about your business or the debt, document everything beyond a proper assignment notice: dates, recipients, content, and any resulting business harm.

Depending on the facts, that conduct can support additional legal claims, including a potential claim involving interference with business relationships.

Call J. Singer Law Group at (917) 905-8280 to schedule a consultation.

The firm can review the notice, agreement, funder's enforcement position, and available restructuring options together.

Frequently Asked Questions

Can an MCA company legally contact my customers?

Yes. Under U.C.C. § 9-406, an MCA funder holding an assignment of receivables can send a notice of assignment to customers, instructing them to pay the funder directly.

A court order is not necessarily required.

The notice must reasonably identify the assigned rights, and the funder must have the legal authority it claims.

Whether default is required depends on the agreement and the nature of the funder's rights.

A defective notice or improperly declared default can provide grounds to challenge enforcement, but both issues need prompt legal review.

What triggers an MCA company's right to contact my customers?

Default is a common contractual trigger, but the answer depends on the assignment and MCA agreement.

Common default provisions address insufficient ACH withdrawals, unauthorized bank account changes, additional financing, and other specified events.

Some agreements also identify bankruptcy as an event of default, although bankruptcy law can restrict enforcement of those provisions.

Review the actual contract and compare its terms with what happened before accepting the funder's declaration.

My business is not in New York. Does New York law still govern whether the MCA company can contact my customers?

Not automatically.

Many MCA agreements contain New York choice-of-law and forum-selection provisions. Those clauses can affect the governing law and where the litigation is filed, but the legal analysis also depends on the assignment, applicable UCC rules, and the specific dispute.

Singer Law Group works with businesses across the United States on MCA issues.

When Singer represents a business in an MCA lawsuit, that lawsuit must be filed in New York. The business itself can be located in California, Texas, Florida, or any other state.

What should I do if an MCA company has already contacted my customers?

Act immediately.

Do not tell customers to disregard the notice before consulting counsel.

Obtain the notice, review the assignment provisions, determine whether any required default occurred, and examine the funder's claimed rights.

Counsel should also consider whether the LG Funding framework allows a challenge to the MCA and whether restructuring or bankruptcy protection is appropriate.

Customer contact can quickly disrupt cash flow, so delaying legal review can make the situation harder to control.

Can filing for bankruptcy stop an MCA company from contacting my customers?

Bankruptcy generally triggers an automatic stay that restricts many collection actions against the debtor and property of the bankruptcy estate.

That can include certain efforts to collect receivables directly from customers.

Whether the stay applies to a funder's particular assignment rights depends on the nature of the receivables, the agreement, and the bankruptcy case.

A bankruptcy attorney should review those issues before filing and determine what relief or protection is available.

If the MCA is recharacterized as a loan, does the funder lose the right to contact my customers?

Not automatically.

Recharacterization can change the legal analysis of the funder's rights and expose the agreement to defenses, including applicable usury challenges.

However, a loan can also be secured by receivables. Whether the funder retains a valid assignment or security interest depends on the documents and applicable law.

The LG Funding framework helps determine whether the MCA is a genuine receivables purchase or a loan.

Counsel must then evaluate what that finding means for the funder's notice and collection rights.

Protect Your Customer Relationships Before MCA Enforcement Escalates

When an MCA funder starts contacting your customers, the problem is no longer limited to the payments coming out of your bank account.

Your customers can receive demands to send money directly to the funder. That can interrupt cash flow, create confusion about who should be paid, and damage relationships your business depends on.

Do not assume the funder's notice is enforceable simply because it cites the UCC. The assignment, notice, agreement, default provisions, and actual operation of the MCA all deserve review.

J. Singer Law Group can work with businesses throughout the United States on MCA issues. If Singer handles an MCA lawsuit, it must be filed in New York, but the business can be located anywhere in the country.

The firm evaluates MCA defense, customer-contact enforcement, settlement, and business restructuring to determine which legal options fit the circumstances.

If an MCA funder has contacted your customers or threatened to redirect your receivables, contact J. Singer Law Group before the situation escalates.

Call (917) 905-8280 for a confidential consultation.

J. Singer Law Group, PLLC is located at 1 Liberty Street, Suite 2327, Manhattan Financial District, New York.