UCC 9-406 explained - notification requirements driving me crazy

This is helpful but what about the notification part? Do we HAVE to notify account debtors or is it just recommended?

Notification isn't required for attachment or perfection, but it affects your collection rights. Until you notify the account debtor, they can still pay the original creditor and discharge their obligation.

What did you include in the notification letters? Did you use a specific format or just wing it?

We kept it simple - identified ourselves as the secured party, referenced the security agreement, and gave clear payment instructions. Make sure to include account numbers and amounts owed.

Did any of your account debtors push back on the anti-assignment clauses in their contracts?

A few tried to but 9-406 is pretty clear that those clauses don't stop the security interest from attaching. We had to educate a couple of them on the law.

Have you tried using Certana.ai's document verification tool? You can upload all those contracts as PDFs and it automatically scans for anti-assignment clauses and other key terms. Saves tons of time compared to reading through everything manually.

never heard of that - does it actually work for UCC stuff? sounds too good to be true

Yeah it's designed specifically for secured transactions. I used it last week to cross-check a bunch of receivables contracts and it flagged all the relevant clauses instantly. Way better than my previous method of ctrl+f searching.

What kind of issues are you talking about? Breach of contract claims?

Exactly. The account debtor might claim breach against your debtor for violating the anti-assignment clause, even though your security interest is still valid. It's a separate contractual issue from the UCC perfection.

Wait I thought 9-404 was about defenses? I'm getting more confused...

9-404 covers both - it tells you what rights you get as assignee AND what defenses the account debtor can assert against you. They're related but different concepts.

This is why I hate Article 9 sometimes. Everything is interconnected and you can't understand one section without knowing three others.

Tell me about it. Half the time the debtor doesn't even have current contact info for their account debtors.

Or they have accounts that are disputed or in collections already. Try explaining UCC 9-406 to an account debtor who's already fighting about whether they owe anything in the first place.

Good point. We always request account aging reports and documentation before starting the notification process.

Smart. Also consider whether you want to do all notifications at once or stagger them based on account size and payment history.

Why would you stagger them? Seems like that just complicates tracking.

Sometimes you want to test the waters with smaller accounts first, or prioritize the ones that are most likely to cooperate. Depends on your debtor's relationships.

The UCC doesn't require a specific method, but I'd stick with certified mail for important accounts. Email can be denied or ignored too easily.

makes sense, just trying to avoid the postage costs on 100+ notifications

Interesting, I hadn't considered that angle. Are you talking about Assignment of Claims Act issues?

Yeah, among other things. Government contracts often have special rules that can complicate receivables financing even when 9-406 says anti-assignment clauses are ineffective.

This is probably the most practical advice in this whole thread. The law is one thing but actually collecting the receivables is what matters for your client.

Exactly. I always tell clients that 9-406 gives you the legal right but you still need a business strategy for exercising that right effectively.

Thanks everyone, this has been incredibly helpful. I think I understand the framework better now - the security interest attaches regardless of anti-assignment clauses, but notifications are needed to establish collection rights, and there are practical considerations beyond just the legal requirements.

This template approach is brilliant! I'm definitely stealing this idea. Quick question - do you include any language about the account debtor's right to raise defenses or setoffs? I've been going back and forth on whether to mention that upfront or just deal with it if they bring it up later.

I've been wrestling with this same template question! From my experience, I think it's better to keep the initial notification focused on the basics - who you are, what's assigned, and where to pay. If you start mentioning defenses and setoffs upfront, some account debtors see it as an invitation to start looking for problems they might not have otherwise raised. Better to handle those issues case by case when they actually come up. The goal is smooth collection, not educating them on all their potential rights.

This is exactly what I needed! I've been drafting notifications from scratch each time and it's been a nightmare. Quick follow-up - do you recommend including any language about modification of existing payment terms or just stick to the redirect? Also, have you run into situations where account debtors demand additional documentation beyond the notification to verify the assignment is legitimate?

Great template framework! I'd suggest keeping payment terms modifications minimal in the initial notification - just redirect payments and maybe mention that existing payment schedules remain in effect unless otherwise agreed. As for additional documentation requests, I've had account debtors ask for copies of the security agreement or UCA filing receipts. I usually provide a redacted version of the security agreement that shows the collateral description and signatures, but nothing with confidential financial terms. Most legitimate requests can be satisfied with basic verification documents, and it actually helps build trust with the account debtors who are cooperating in good faith.

This two-phase framework is really helpful for understanding the disconnect I've been experiencing! I kept thinking that because the security interest was valid, everything else would just work automatically. Your point about the timing being critical makes total sense - there's that gap period where the account debtor can still discharge their obligation by paying the original creditor. I'm curious about your experience with account debtors who receive notifications but continue paying the original creditor anyway. Do you typically send follow-up notices or go straight to more formal enforcement measures? Also, when you mention the underlying contract can still be breached - are you referring to situations where the account debtor claims the original creditor violated the anti-assignment clause, even though it doesn't affect our security interest?

This playbook approach is exactly what I wish I had when I started dealing with receivables financing! The coordination point with the debtor is huge - I made the mistake early on of treating this as purely a legal/procedural matter without considering the business relationships involved. One question about your pre-notification checklist - do you verify the account debtors' creditworthiness as part of that process? I'm wondering if there's value in prioritizing notifications based on account debtor financial stability, especially in larger portfolios. Also, have you found it helpful to include any standard language in your notifications about maintaining existing business relationships? Some of our account debtors seem worried that the assignment means their vendor relationship is in trouble.

Your playbook idea is fantastic - I'm definitely implementing something similar! I particularly appreciate the point about coordination with the debtor before sending notifications. In my experience, the debtor's existing relationships with account debtors can make or break the collection process, regardless of what 9-406 says legally. One thing I'd add to your escalation procedures - document every interaction with non-cooperative account debtors meticulously. I've had situations where account debtors initially pushed back but then became cooperative once they understood we weren't trying to disrupt their business relationship with our debtor. Sometimes what looks like "non-cooperation" is really just confusion or concern about the implications for their ongoing business. The key is distinguishing between account debtors who legitimately don't understand the process versus those who are trying to game the system.

Welcome to the receivables financing world! Your questions hit on some really important practical considerations. On batch vs. individual notifications - I've found that for accounts over $50K, individual customized letters get better response rates, but for smaller accounts, a well-crafted template works fine. The key is making sure even your "batch" notifications include specific account numbers and amounts. For pushback, the most common objections I see are: "we have anti-assignment language" (easy to handle with 9-406 explanation), "we need verification" (provide redacted security agreement), and "we're disputing the underlying charges" (gets tricky - you inherit whatever disputes existed). Healthcare and government contractors tend to be more resistant in my experience, probably because they deal with more regulated payment processes. As for international account debtors - that's where things get really complex. 9-406 is part of US state law, so its effectiveness depends on which jurisdiction governs the underlying contract. I'd strongly recommend getting international law counsel involved for cross-border receivables. The choice of law provisions in the original contracts become critical, and you might need to deal with different notification requirements or anti-assignment rules depending on the governing law.

Great questions! I've dealt with large portfolios and found that a hybrid approach works best - use a solid template for accounts under $25K but customize for anything larger or where you know the account debtor has specific concerns. On industry pushback, I'd add construction/contracting to Ella's list - they often have complex lien and payment bond issues that make them nervous about payment redirections. For international receivables, definitely get counsel involved, but also consider whether the juice is worth the squeeze. I've seen deals where the legal costs of sorting out cross-border issues exceeded the value of the foreign receivables. One tip - if you do have international accounts, try to group them by governing law so you can get more efficient legal opinions on the 9-406 effectiveness in each jurisdiction.

This is such a valuable thread for understanding the practical side of 9-406! To add to the international discussion - I recently worked on a deal with Canadian account debtors and found that while 9-406 applied to our US security interest, the Canadian accounts had their own provincial Personal Property Security Act (PPSA) considerations that affected collection procedures. We ended up having to send dual-format notifications to comply with both jurisdictions' requirements. Also, on the industry-specific pushback point, I'd add that retail and hospitality businesses often get nervous because they're used to dealing with factoring companies that completely take over the customer relationship, so they assume any receivables assignment means their vendor is in financial trouble. A simple explanation that this is asset-based lending rather than factoring usually resolves their concerns. One more practical tip - consider including a FAQ sheet with your notifications for larger account debtors that addresses common concerns upfront.

Great question about setoffs and counterclaims! This is where 9-404 intersects with 9-406 - remember that under 9-404, you generally take the receivables subject to any defenses the account debtor could assert against the original debtor. My approach is to request documentation of claimed setoffs upfront, but with a reasonable deadline (usually 10-15 business days). This serves two purposes: it separates legitimate claims from fishing expeditions, and it gives you time to investigate with your debtor before the account debtor stops paying entirely. For escrow arrangements, I'm generally open to them for disputed amounts if the account debtor continues paying undisputed portions. It's often better to have part of the receivable secured in escrow than to have the whole thing tied up in disputes. Just make sure the escrow terms are clear about release conditions and who controls the funds. Document everything thoroughly because these situations can get messy quickly if not handled properly from the start.