When you are looking into accounts receivable factoring do not ask for something along the lines of “my accountant suggested we look into factoring our invoices but we don’t want our customers to know about it.” Factoring companies receive calls all day from businesses that are looking for funding. The majority have to be turned down for one reason or another. If your company qualifies for commercial financing, that’s a good thing. It shows that your business is mature enough to be approved by an outside source of capital, which is a strong statement in any emerging growth development.
Here’s what you need to know, when a borrower enters into an agreement to receive advances on their invoices, they are essentially selling the rights to those invoices to a third party. The factoring company owns the invoice now as an asset against the money we just wired into your bank account. It’s essential that the account debtor is legally notified that the proceeds of the completed invoice have been assigned. Probably the single most critical part of factoring invoices is that the account debtor pays the factor directly. The check always must come to our lockbox. There’s no sneakiness tolerated in a proper commercial finance transaction.