When a factor makes an advance to a business on invoices or accounts receivable they want to be certain payment is received from the account debtor. Whether or not the account debtor is notified of the assignment differentiates between notification factoring and non-notification factoring.
With Notification Factoring the account debtors are notified the invoices were purchased and are requested to make payment directly to the factoring company.
In the case of Non-Notification Factoring the account debtors are not notified the business sold and assigned the receivables. Also known as confidential factoring, the invoices are generally paid to a lock-box.
Factoring is primarily handled on a notification basis. In fact about 82% of factoring involved notification with non-notification only comprising 18%, according to the most recent survey results published by the Commercial Financing Association (CFA).
While notification factoring continues to be the industry standard, there are times when non-notification factoring will best provide a company’s need for confidentiality when factoring their account receivables.
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