7 things to do when your MCA funder notifies your customersthe UCC lien letter, answered, 2026

When an MCA funder writes to your customers: what the notice can actually do, and how to answer it

Your funder decided to bypass you and demand that your customers pay them instead. An MCA funder sending a UCC lien notice is an aggressive tactic. Here's what it means and how to fight back.

For years, UCC-1 financing statements have been used to perfect a funder's right to collect what they bought. That's a standard way to stake out a security interest on business assets - real and intangible. The dispute starts when your funder goes further and sends your customer a "Notice of Assignment," typically with bold-faced threats to direct all money due to the funder, not to you. The aim is simple: take cash away from your bank account and divert it to them.

A UCC lien does not instantly equal collection rights to a customer's payment. Before a funder can tell your clients to pay them directly, many hurdles must be cleared. An over-broad demand, unsupported by facts, is exactly what merchant businesses use as leverage to negotiate a reduced payoff.

What the Notice Letter Usually Says

A typical UCC assignment notice claims a security interest on all current and future receivables (a "blanket lien"), attaches a copy of the UCC-1 the funder filed with the state's Secretary of State, and demands the customer pay the funder's collection agent now to avoid "double liability" - saying that paying the merchant will not discharge the client's obligation, so the client could be "forced to pay twice." It is usually from a third party, often a collector or recovery firm, not from the funder itself.

It is worded to alarm the account debtor. When your clients get that letter, their accounting departments, legal, or procurement staff call you right away. In some cases this surprise alone will make a few businesses pay the funder out of fear. In reality, there are good legal defenses. Fast action and sharp documentation work wonders. It is notice, not a levy or seizure - and it must be grounded in law and fact.

Immediate Responses

Read the contract terms first

Look at what the "Purchase and Sale Agreement" actually covers. Is it truly an "all assets" claim, or does it apply only to specific revenue - for instance, funds settled through a certain processor? Many small and mid-sized funders still use old, boilerplate forms, and the descriptions can be imprecise. Review the actual UCC-1 on file; don't rely solely on the one sent to your customer.

Examine whether you are in default

Often, collection agents act before default is firmly established. You are entitled to dispute the amount owed, challenge whether the event triggering "acceleration" was real, and demand that the funder first complete a reconciliation if sales have dropped. Many MCA contracts specifically require a certain sequence of steps before direct assignment notices can be sent. If those steps were skipped, the notice is improper.

Communicate clearly with your clients

If a client's accounting department calls, give them clear written assurance: a dispute exists and it is being handled by legal counsel. Ask them not to respond to the third party unless directed by court order, and send your counsel's contact information. Keep it brief. Do not admit default or mischaracterize what is owed. Your clients usually do not want to be pulled into this, and most sophisticated account debtors have experience with these claims.

Have your attorney respond in writing

A good response letter points out whether a true event of default happened or whether cure provisions allow more time; demands that the funder or its agent cease further assignment attempts, with a correction notice to all previously notified customers; and lays out an early version of any defenses - recharacterization, reconciliation, unfair business practices - setting up your later negotiation position. Do not ignore it. Prompt response tells the funder they cannot count on intimidation to extract a fast, full repayment.

Document all business interference

Keep written logs. Any time a client says the collection notice influenced a payment, order, or renewal, write it down. This record helps establish damages for tortious interference with business relations. Interference requires proof, not just your word, that business was lost because of improper tactics.

Is the Debt Even Enforceable?

Under New York and other states' usury statutes, what a funder labels a "purchase" could in reality be an unlicensed, unregulated loan. If the court finds the advance is not a true sale of future receivables but a loan - the amount is fixed, not a floating percentage of future sales, and no reconciliation is offered - the defense becomes powerful. A loan may be usurious, so the agreement may be void (for criminal usury in New York, when the rate is above 25%). It could open the door to punitive damages or attorney's fees. When a UCC lien is based on a contract that could itself be void, there is substantial negotiating leverage.

The Case File

Your MCA agreement, including any security or collateral addendums. Copies of UCC-1 filings, from the Secretary of State's online portal. Remittance history - dates and amounts of each ACH payment. All written communications regarding reconciliation or modification attempts. The actual letter or email your customer received, not a summary. The customer list that got notified, with the date each client received the letter. With these organized, you can mount defenses and settlement talks with clear data, not assumptions.

Injunctive Relief and Interpleader

If collection agents persist in harassing your customers, or business is truly at risk, injunctive relief - a temporary restraining order or preliminary injunction - can be pursued. Availability depends on showing immediate and irreparable harm. Because UCC liens by themselves do not take possession of property, showing urgency and harm without overplaying your hand is crucial. This path is often avoided if clear and decisive negotiation happens first.

If your client gets competing payment demands from multiple collection shops, interpleader is often the fastest way for your customer to get out of the middle. It lets the court hold disputed funds while the claimants battle each other for priority, while the merchant focuses on overall resolution. Interpleader filings can be expensive, so knowing which claims are strongest helps steer toward a complete, negotiated deal.

Settlement

Be realistic. A funder using this pressure tool is signaling they are worried about being paid at all. That gives you leverage: settlement math is on your side. The owner who organizes defenses, shows business impact, and starts talks at a significant discount often resolves the case while avoiding a drawn-out battle. Always calculate what is owed - if anything - under a best-case, lowest-interest scenario before offering a number. Litigation often plays a part as a strategy, but more often than not, clear evidence, timely pushback, and accurate information outside court gets you a better deal, faster.