When a factoring company purchases the amount owed on an invoice and wires an advance based on the face value of the invoice, it is legally required to inform the account debtor (customer) about the assignment. Simply the factoring client has assigned the proceeds (payment) of an invoice to the factoring company. When the proper notification has been made, failure by the account debtor to pay the factor directly results in a payment over notice claim. What this means is, the factoring company can take the account debtor to court and force them to correctly pay the assignor. Obviously this sours the relationship with the account receivable factoring company and its client. That is why it is imperative the payments go directly to the factoring company.
Factoring companies handle the notification process somewhat differently. The proper method is for the account debtor to sign a notification letter that advises them of the assignment. Any receivable factoring company that does not actively require customers to acknowledge an assignment of claims is working loosely with the governing rules and is bound to be on the short end of a failed transaction. It is critical to choose to work with a factoring company that has the proper funding process in place to insure the financing will be in place when you need it.