Last reviewed: October 2026
Short answer: if your contractor has sold its invoices to a factoring company and you receive a signed notice telling you to pay the factor, paying the contractor no longer clears your debt. Under Texas law you can only discharge it by paying the factor (Tex. Bus. & Com. Code §9.406). The lien waivers still come from the people with lien rights: the contractor, its subcontractors and its suppliers. And no one can be required to sign an unconditional waiver for a payment they have not actually received in good funds.
This guide explains how factoring changes a construction draw, which waivers you still need and from whom, and how to release money safely when a title company, lender or other third party is holding it.
What factoring is, and why it shows up on construction draws
Some contractors sell their unpaid invoices (their “receivables”) to a factoring company to get cash sooner. The factor pays the contractor most of the invoice upfront and collects the full amount later, often directly from you. It is a financing choice, and on its own it is not a red flag. What matters for you is that it changes who you pay, and that it does not change who can file a lien.
What changes when you receive a notice of assignment
Texas follows the Uniform Commercial Code on this point. Until you receive a notice of assignment, you can pay the contractor as usual. Once you receive an authenticated notice (signed or electronically signed by the contractor or the factor) that reasonably identifies the invoices assigned and tells you to pay the factor, you can only discharge that debt by paying the factor. If you keep paying the contractor, you may have to pay twice.
What to do when a notice arrives:
- Check that it identifies the right contract and invoices. A notice that does not reasonably identify what was assigned is not effective.
- Ask for proof of the assignment if anything is unclear. On request, the factor must provide reasonable proof that the assignment was made.
- Update the payee for that contract with your lender, title company or fund-control agent before the next draw is processed.
- Keep collecting the same lien waivers as before. The notice changes where the money goes, not who has lien rights.
Whose lien waivers you still need
A factoring company is not a lien claimant on your project. The people who can file a mechanic’s lien are the contractor and the subcontractors and suppliers below it. So on every draw:
- From the contractor: a conditional waiver for the amount being requested, then an unconditional waiver once that amount has actually been paid. If the factor collects it, confirm with the contractor that the factor’s receipt counts as its payment.
- From subcontractors and suppliers paid from the previous draw: unconditional waivers for what they were paid, plus a list of anyone still unpaid.
- Use the statutory forms. Texas waivers must substantially comply with one of the four statutory forms in the Property Code. See our Texas lien waiver forms guide.
Can someone require an unconditional waiver before releasing the money?
No. This is the rule people most often trip over. Under the Texas Property Code, a person may not require a claimant to sign an unconditional waiver for a progress or final payment unless the claimant has received that payment in good and sufficient funds (§53.284). An unconditional waiver takes effect when it is signed and delivered, and it carries a statutory warning for exactly this reason.
The sequence that works when a third party holds the money (a title company, the lender’s fund control, or a payment platform):
- Before funding, collect conditional waivers for the amounts requested.
- Release the funds.
- Once the funds have cleared, collect the matching unconditional waivers.
- Do not release the next draw until you have them.
Joint checks: a useful control, not a guarantee
A joint check is payable to both the contractor and a subcontractor or supplier, so neither can cash it without the other. It is a common way for owners to make sure a lower tier actually gets paid. It reduces your exposure but does not remove it: if the supplier endorses the check and still is not paid in full, it can keep lien rights for the balance. Always pair joint checks with waivers.
Red flags on a factored draw
- Two parties (the contractor and a factor) both asking to be paid for the same draw.
- A notice of assignment that does not identify the contract, or that nobody can prove.
- Subcontractors or suppliers telling you they are unpaid while the factor is collecting.
- Pressure to sign or accept unconditional waivers before funds have cleared.
- A draw billed on work the inspector has not seen in place.
Frequently asked questions
Who do I pay after I get a notice that my contractor’s invoices were factored?
Once you receive an authenticated notice that reasonably identifies the assigned invoices and tells you to pay the factoring company, you discharge that debt only by paying the factor (Tex. Bus. & Com. Code §9.406). Paying the contractor after that point can leave you paying twice.
Does the factoring company sign lien waivers?
Usually not. The factor is not a lien claimant on your project. The contractor, its subcontractors and its suppliers have the lien rights, so their waivers are the ones that protect you. If the factor collects the contractor’s payment, get the contractor’s waiver to reflect that payment.
Can my lender or title company require an unconditional waiver before releasing funds?
Texas law says no one may require an unconditional waiver for a payment unless the claimant has received that payment in good and sufficient funds (Tex. Prop. Code §53.284). Use conditional waivers before funding and unconditional waivers after the funds clear.
Can I ask the factoring company to prove the assignment?
Yes. On request, the factor must provide reasonable proof that the assignment was made (Tex. Bus. & Com. Code §9.406). Until the notice is effective, you can keep paying the contractor.
Are joint checks enough to protect me from liens?
They help but are not enough on their own. Pair every joint check with the matching lien waivers, because a supplier that endorses a joint check and is not paid in full may still have lien rights for the unpaid balance.
Talk it through
If a factoring notice or a third-party payment arrangement has landed on your project, book a free 20-minute project review. We will look at the notice, the draw and the waivers with you. See also our construction draw administration service, and for lenders, our draw inspection services.
This page is general information, not legal advice. Statutes cited: Tex. Bus. & Com. Code §9.406; Tex. Prop. Code §§53.281–.287. Talk to a Texas construction attorney about your specific situation.