The entire Factoring process relies on above board transparency. which means everyone is on the same page; the factoring company, the client, and it’s customers.
We receive calls all day from businesses that are looking for funding. Many we have to turn down for one reason or another. Having a business that qualifies for commercial financing is a good thing. It shows that you are far enough up the credit ladder to be approved by an outside source of capital, which is a strong statement in a company’s development.
Here is how factoring works. When a (client) 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, who now owns the invoice as an asset against the money wired. Each customer (account debtor) must be made aware this has happened. It is essential that the account debtor be legally notified that the proceeds of the completed invoice have been assigned. 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 up front commercial finance transaction.
So bottom line, everyone has to be in on the deal. But if handled properly, factoring is seen as a positive growth step to the ongoing success of any business.