If you use invoice factoring for your business, there may be times when you want to ensure there is as little contact as possible between your factoring company and your customers. There are several reasons why you might want to do this, but usually it is because you have an agreement with a customer that you will not provide their information to a third party, or if there is sensitive information involved. A non-notification factoring loan provides a method for companies to continue with their invoice factoring, but it obscures that there is a factoring company involved.
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If you run an invoice-based business, then you know how bringing cash in can be difficult. You perform a service or provide a product, and then issue an invoice. That invoice will then have a grace period that can span whatever timeframe you want, but is often 30 days. If you run your invoices once a month, then depending on when you provide a service, you may be awiting up to 60 days for payment. This is where factoring can be of service.
For a normal factoring agreement, you would invoice the customer, and then send a copy of the invoice to your factoring partner. The factoring company would then pay you out a percentage of the invoice immediately so that you have cash in hand. They will then assume the responsibility of collecting the payment from the customer. They may send follow-up letters, invoices, or phone calls, if necessary. Once the payment is made, the factoring company will then forward you the rest of the funds, minus any fees that you owe them for their services.
In most cases, customers are fine with a factoring company handling invoices. They understand that it’s a valuable service for some businesses that might otherwise have to wait up to 60 days for payment. However, there are some customers that may not want another party involved. They may be concerned that it will harm their relationships with their own customers, or that sensitive information will be released.
For these situations, a non-notification factoring deal is an appropriate option. Under such an arrangement, the factoring company would still be responsible for invoices. However, there would be no outward evidence of this to the customer. Any correspondence will be on your own letterhead or unbranded forms. The return mail address would be a PO Box so that the customer is not mailing checks directly to the factoring company, and phone calls can be from a private number.
Under a traditional factoring deal, there are very few limits on what transactions will qualify once the client is approved by the factoring company. However, with non-notification factoring there are special requirements that must be met. Your factoring company will evaluate each situation on its own merits to decide whether it will qualify.
For example, in most cases it is with recurring invoices as opposed to single transactions. There must also be a long history of on-time payments missed. The customer must have been in business for several years and be at a low risk of declaring bankruptcy. There will also have to be a credit check to ensure they are reliable.
While the requirements are more strict, this might be the best choice for your business with certain customers. It will help you maintain your client relationships while still being able to continue with your factoring agreement.
The good thing is, there is no difference in pricing between traditional and non-notification factoring. Costs will vary between providers, though, so you will need to check on what options are available to you.
When operating any kind of business, your first priority should be your clients. Their needs must be met if you wish to keep them coming back and buying your products or renewing their subscriptions. You do not want to damage customer relationships by using factoring if your clients do not wish it. That’s why non-notification factoring is so valuable. You can continue to get cash as quickly as possible, while also keeping the needs of your clients in mind.
Essentially, a non-notification factoring loan is right for your business if you are in the above situation with any of your clients. You will have to weigh the benefits of getting that cash in hand with the negative of potentially having to let go of a client because you can’t afford to have them pay every 30 days. You are the only one who can make that determination after examining your financial situation.
Factoring is a great way to keep your cash flow intact even when you are an invoice-based business. Non-notification factoring allows you to get cash in hand more quickly while also having a seamless interaction between your clients and the factoring company. If you think this service is right for you, then talk to a factoring company to understand your options.