A question often asked of invoice factoring companies is will you contact our customers?
The answer is, of course, a resounding ‘yes’. This leads to the importance of searching for a factoring company who understands the business, and is able to interface with your customers at the highest level in a courteous and knowledgeable manner. Let’s examine why the interaction with your customers is necessary.
- You are receiving an advance on your working capital from the factor
- Your accounts receivable will be managed and collected by the factor
- Invoices need to be directed to a specific address provided by the factor
If you have ever factored your accounts receivable you will be aware of the term ‘Notice of Assignment (NOA)’. For those of you still considering invoice financing, we will explain why a Notice of Assignment is required.
A Notice of Assignment is a key point of contact by the factoring company with your customer. This document explains that the invoice your customer owes has been assigned to the factor, and is now payable to your factoring company. Your client may accidentally send payment to you, but your money has already been advanced to you by the factor. If you accept payment having already received the advance from your factor, your customer will still be liable for the money under the terms set out in the NOA, so it is important to understand how the process works. Your factor will, of course, explain the details once you get to this stage of the negotiation. It is vital that all parties realize the importance of the NOA. A reputable factor will not proceed without this documentation and you should be wary of an accounts receivable company who is prepared to move forward without one in place.
If you are factoring government contracts, the government created a ‘Federal Assignment of Claims Act’ (FACA) to make it easier and faster for the government contractor to assign payment to a factor. Whatever form it takes, the NOA simply ensures a level of compliance for you, your customer, and the factoring company.
When searching for accounts receivable financing, be sure to ask how the factor interacts with your customer. Ask to see a copy of the documentation your customer will be receiving, and check the process used to collect on factored invoices. Search for an accounts receivable finance company with a proven track record in maintaining excellent relationships with their clients’ customers.