More and more businesses are taking advantage of the benefits that come with factoring their invoices. However, some may have difficulty with factoring if they do not or cannot let their clients know that they use a factoring service.
There are several reasons why this might be the case. You may work with clients that deal with sensitive information, for example, who don’t want a third party involved in transactions.
You may also have contracts with clients that forbid factoring, or them being contacted by a third party. If you still want a factoring agreement for your business, then non-notification factoring may be the best choice for you.
Factoring helps a business with their cash flow. Instead of waiting 30, 60, or even longer to get payment for invoices, a business can use a factoring service. The factor will provide the business with most of the cash up front, and then take ownership of the invoice to get payment.
Usually they will pay out a large percentage, such as 90-95% of the invoice within hours of receiving it. Once the customer pays the invoice, the factor will then pay out the rest, minus any fees they are charging for the service.
The factor is responsible to get payment from the customer, and will send them invoices and follow-ups until payment is made. The originating business gets the benefit of having cash in hand instead of waiting for payments. While this is a great option for many businesses and their clients, there may be instances when the business does not want their clients to know that invoices are coming from a factor.
Most of the time, factoring is a great option if you are looking for capital and can’t wait for payment. However, factoring can present challenges in certain situations. Some companies have it built into their contracts that vendors cannot use third parties for invoicing.
Obviously, if you have such an arrangement, you do not want a factor to send invoices and notifications, as it would ruin your relationship with the client. Even if there is no such contract, using a third party may still damage the customer relationship.
This is when the business and the factor may decide that non-notification factoring is an appropriate option. Most of the time, contracts that require no third parties are in place so that they are not contacted by that third party. Non-notification factoring can remedy this issue.
Non-notification factoring works in the same general way as regular factoring. However, the difference is that the client does not know that there is a factor involved in the process.
From your end, everything would work the same. When you have an invoice to send out, you can still provide it to the factor and they will pay out for it. The only difference is that when the factor seks payment from the customer, they do not identify that they are a factor.
Usually, the factor will have their address on any correspondence with a customer. With non-notification, they often will use a PO Box so that they cannot be identified. Every communication will use your letterhead and branding, so it will seem like it is coming directly from your company.
A factoring company will not enter into a non-notification agreement with just any business. There are certain standards that need to be met. In most cases, they will only do so with a business they have been working with for a long time.
Generally, they will do it for regular payments as opposed to one-offs. The customers themselves must have little to no risk of bankruptcy and good credit. Normal factoring requires fewer requirements and is easier to set up. Some of these requirements may change depending on the business/factoring service relationship.
As a business, you should always be considering the needs of your clients. If it serves them best to use non-notification factoring, then it should be your choice. Your financial situation should also dictate whether you use factoring in the first place, not to mention non-notification factoring.
If your cash flow can handle it and your relationship with your clients could be damaged, then it might not be the best choice. You can never go wrong with contacting a factoring company to discuss your options and see what is best for your company.