Whenever a factoring company purchases invoices for operational cash flow it is critical that payments of those invoices goes directly to the factor. Whenever utilizing accounts receivable financing a lockbox bank address is put in place to receive customer payments. Because invoice financing is largely based on paper exchanging hands, the factoring company must have control of incoming payments. There is no transparency; the customer will be made aware that their remit to address for the invoice is the factor’s lockbox address. Even with ACH payments, they must go to the factor’s bank.
Failure to comply with this feature will result in the default of the purchase agreement and usually an immediate “collect out†of outstanding unpaid invoices with dismissal of the factoring arrangement. It is by far the single most unsatisfactory action a borrower can do to a factoring company. Make sure you are aware up front how seriously factors regard this matter.