Small Business Factoring – What is a Notice of Assignment?
Ever wish your customers would pay their invoices early? Small business factoring is a great way to leverage funds from invoices that are not yet due. By selling your unpaid invoices to a factoring company, you can improve your cash flow and allow you to take advantage of unexpected opportunities like larger orders of new business. But what happens once you sell those invoices?
Once the factoring company purchases your invoices, you are no longer responsible for collecting on them. The invoices are now owed to the factoring company and they will handle collections.To notify your customers of this, they will receive a Notice of Assignment from the factoring company.
What is a Notice of Assignment?
The Notice of Assignment serves as an introduction of the factoring company to your customers, It’s a critical part of the small business factoring process and addresses four important issues.
- The Notice of Assignment informs your customer that the factoring company will be managing the invoice going forward.
- The document contains the formal and necessary notice that the factoring company is now the agency with the right to the payment.
- The Notice of Assignment provides your customer with all of the new all-new payment information, including bank information and full instructions on submitting payment.
- The Notice of Assignment also includes other pertinent legal matters. These can vary depending on the factoring company and the customer account itself.
Types of Small Business Factoring
A Notice of Assignment is used for both recourse and nonrecourse small business factoring. It is crucial that the business owner understands the difference between them. With recourse factoring, if the customer fails to make payment, the responsibility falls on the business owner. With non-recourse factoring, the terms can vary but typically the bulk of the responsibility falls on the factoring company.
Because the risk for the factoring company is higher, the fees for non-recourse factoring will be higher as well.
Understanding the Notice of Assignment
When partnering with a factoring company, both the business owner and the customer will receive a copy of the Notice of Assignment. It is important for each party to review the notice thoroughly. There are a couple of reasons for this.
First of all, it is not uncommon for the customer to call the business owner once they receive the notice. That conversation will go smoother if the business owner is fully aware of what information the notice contains and can confidently address any concerns the customer may have.
Secondly, it provides both parties with a clear understanding of how the invoice is to be paid and the potential consequences of a misdirected payment. If the customer doesn’t follow the directions outlined in the Notice of Assignment and pays the business owner directly, the invoice will technically be unpaid. The notice will provide instructions for the business owner on how to forward that payment to the factoring company. Both parties should be aware that there may be fees owed to the factoring company for a misdirected payment.
Should neither party pay the invoice, the Notice of Assignment will also serve as evidence in legal action taken by the factoring company. While this is not a common occurrence, it reinforces the importance of the notice.
Small Business Factoring with CapFlow Funding Group
Capflow Funding Group specializes in invoice factoring for both small and large businesses. When you partner with us, we will make sure you completely understand the terms of your factoring agreement. Not sure invoice factoring is the right funding option for your business? We also offer merchant cash advances and work with trusted partners to provide a variety of other funding options. We provide services to many different industries with a variety of different funding needs. Contact us today and find out how invoice factoring can help grow your small business.