How Invoice Factoring Companies Receive Payments

At the inception of an invoice factoring arrangement, a notification letter is sent out to all the customers asking them to forward payments to the factor. The notification letter is typically written in such a way as to emphasize that the receivables for XZY Corp. are being managed by a third party (the factor) and that the same great relationship with them will continue. Since the receivables are the "collateral" for the cash advances the company has received, it is necessary for the factoring company to have control over payments.

Occassionally, there will still be payments sent to the company. It is imperative that the company receiving the factoring services immediately forward on those payments to the factor. To knowingly deposit those funds into the company bank account would be, at the least, an action that would cause a termination of the funding arrangement. In some cases, company officials could be prosecuted for a crime.

Kent Harlan, CPA
kenth@ocflink.com
www.ocflink.com
(417) 849-7394