So, you think that invoice factoring might be a good option for your business, but you don’t want your clients to know that you’re using a factoring company. This could be because you are in a particular industry that works with sensitive information, you have a specific clientele that wouldn't want to work with a third-party company to settle their invoices, the list goes on. The bottom line is that this does happen and there are options to accommodate you.
In this article, we are going to go through the ins and outs of what a Non-Notification Factoring Deal is and how you can use it in your business.
Here is everything you need to know about Non-Notification Factoring Deals:
A typical process when working with a factoring company looks like this: You have accounts receivable, and you would like to be able to get cash on that accounts receivable right away versus waiting the 30 or 60 days for your client to pay. So, you approach a factoring company, and you ask for some of that cash right now, today. After your application is reviewed and approved, you submit your invoices to the factoring company along with any backup you may have to substantiate the invoice. Once the factoring company can verify that the invoice is proper, they typically advance 80 to 95 percent of the amount of the factored invoices the same or next day. The factoring company then notifies your client that they need to make sure they pay the factoring company directly.
We say this is the typical process because this is the process that is used the majority of the time; however, not all clients are created equal. There are some situations where disclosing that you're working with a factoring company may not be an option.
While traditional factoring is a fantastic option for businesses who need access to capital right away and do not want to wait for their clients to pay their invoices, there are some challenges that business owners may come across from time to time.
The biggest challenge we see is when a particular company does not allow their vendors to have their invoices assigned or factored per the contract. In these cases, the factoring company cannot send out notification of assignment letters, without going against the contract and hurting the client and their customers relationship. This is a case where the factoring company would have to look at the situation and evaluate whether providing a non-notification factoring facility makes sense.
Another concern we see is that the factoring company needs to be in direct contact with the client's customers in most cases at some point in time. Since the process involves having payments directed to the factoring company directly and that there is a notification and verification process. Some prospective factoring users are concerned that this 3rd party involvement may hurt their customer relationships.
With a simple explanation to the customer, in most cases there are no issues with utilizing a traditional factoring facility. But this does not mean in all cases. So comes the need for non-notification factoring.
In simple terms, you, as a client, can still convert your invoice to cash, but you don't have to tell your client. It is a form of factoring that significantly limits the number of interactions between the factoring company and your clients. In other words, the factoring company's presence throughout the process is seemingly non-existent.
If there is a point where the factoring company needs to communicate with one of your clients, the communication is done in a way that makes it seem like they're part of your company. Factoring companies can use your company collateral when sending notifications, emails, etc.
Here at Meritus Capital, we recently closed a transaction where a legal staffing firm wanted to make sure that their large law firm clients did not receive notifications from us. They had particular concerns with their larger clients knowing about working with a factoring company, so we made sure to provide them with Non-Notification Factoring. This particular client of ours is thrilled that we've been able to provide the cash, convert the invoices every day to cash, and not have to tell the law firms to pay us directly.
While traditional factoring tends to have minimal requirements to qualify, Non-Notification Factoring has a few more requirements. Although each deal is evaluated individually and does not necessarily require all of the following, some of the requirements can include:
As you can see, when compared to the traditional factoring qualifications, Non-Notification Factoring is stricter on which businesses qualify for the service. However, if you think this is the right option for your business and will help you keep your relationships with clients, then we encourage you to pursue the possibility. We are here to answer questions and provide assistance.
At the end of the day, you are in the business of serving your clients. If you are in an industry where having a Non-Notification Factoring Deal is a better option, then getting in touch with a factoring company to learn more information and get the process started is in your best interest.
We would suggest that you consider the differences between traditional factoring and Non-Notification Factoring to make sure you are getting the best option for you and your business. We hope that this has been informative for you. We're here at any time to discuss any of your questions. We pride ourselves in being informational and being able to really help people understand what factoring is all about.
If you have any further questions about invoice factoring for your business, feel free to reach out to us here at Meritus Capital anytime by email at info@merituscapital.com or call us toll-free at 1-877-648-3709. We have been providing factoring services to businesses across the U.S. and Canada for almost 20 years!
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