Non-notification factoring is a type of invoice factoring arrangement between a business and their factor that limits the interaction between the factor and the customer as much as possible. There are a variety of reasons why a business may pursue a non-notification factoring deal, but the results for the business, factor and client are often the same as traditional factoring deals.
Before we delve into how non-notification factoring differs from more traditional factoring, it is important to understand exactly what Invoice Factoring is.
Invoice factoring, sometimes referred to as receivables financing, is the process in which a financial company buys a business’s unpaid invoices for a percentage fee. Factoring massively expedites cashflow for participating businesses, as invoices from accounts receivables that would regularly take 30, 60, or even 120 days to become usable capital can be sold to a factor and quickly turned into cash. When a factor buys an unpaid invoice, they will pay up to 95% up front. The factor will then pay out the remaining percent, minus fees, to the business when the customer pays the invoice. Typically, once a business is approved for factoring, the factor is responsible for collecting on the original invoice meaning the factor, not the business, will then reach out to the customer to redirect collection. This final step functions differently in a non-notification factoring deal.
Normal Invoice Factoring Versus Non-Notification Factoring
Traditional invoice factoring agreements function near-identically for the business, but changes happen in the dealings between the factor and customer. Once a business and factor agree to a non-notification deal, all notifications sent from the factor to the customer are done through white-label forms or forms on the business’s branded stationary or email signature instead of the factor’s. This means that even though the customer is still corresponding with the factor when paying their invoice, it appears they are dealing with the original business.
To further conceal the factor’s identity, payments sent from the customer via postage will often be sent to a PO box instead of directly to the factor. Electronic deposits from a customer will also pay directly to the factor, but because all notifications are sent either with the business’s email signature or branded stationery, it will appear as though they are paying the business directly. Non-notification factoring is a service that attempts to make the invoice process appear more seamless to the customer. By paying invoices that appear to be directly from the business instead of a factor, customers are simply given a more streamlined version of their part of an invoice factoring deal.
Qualifying for Non-Notification Factoring
Traditional invoice factoring qualifications are less stringent compared to other financing options like loans. When applying for factoring, a business’s credit score is not nearly as important as the credit scores of the customers who will eventually pay out the invoice. Non-notification factoring, however, will likely have several more requirements. Factors will often look for you to meet several criteria when choosing to make a non-notification deal with a business including:
- 2 years or more in business
- Low risk of bankruptcy
- Minimum invoicing rate of $250,000 per month
- 1 year or more of accounts receivables data
- Credit-worthy clients
- Your business must fall within services or manufacturing includings
Exact requirements will often vary depending on the factor a business chooses to partner with. When making a non-notification factoring deal, expect that a factor will consider at least some of the requirements listed above, and may have additional requirements not listed.
When to Consider Non-Notification Factoring
Non-notification factoring is a service specifically for the benefit of your customers, particularly when you don’t want them to know you are using a factoring company. Non-notification factoring can also improve a business’s relationship with a customer, as the business’s name and branding will be present for every step of the invoice process. Non-notification factoring may also help in the event a business and customer’s contract restricts the use of a factor. Such contracts usually bar a factor from sending notifications to the customer, so non-notification factoring often means a business can take advantage of the cash flow benefits of factoring and stay within the grounds of their contract. Businesses seeking a non-notification factoring deal because of contractual obligations will often need to share the contract with their factor.
Any time where a third-party contribution may hurt the relationship between a business and their customer, non-notification factoring may be an effective compromise. Non-notification deals, however, require a strong relationship between a business and their factor, as the factor must essentially act as the business when collecting for the invoice.
Weigh your Options and Speak to a Professional
Every financial situation is different. The most effective way to learn if you would benefit from a non-notification factoring deal or invoice factoring in general, is to speak to a lender or a financing professional. Invoice factoring is a massively helpful tool in increasing a business’s cash flow without the potential of debt brought on by a loan. If your arrangements with a customer could benefit from increased discretion or if you are interested in learning more about how a non-notification factoring deal may help you business, get in contact with a Kapitus specialist who can address your situation.