Ozarks Capital Funding

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Debtor Payments Must Be Made to the Factor

April 3rd, 2010 · No Comments

In must invoice factoring relationships, the client’s accounts receivable is the only collateral available to the factoring company.   Since the client receives cash advances via wire transfer within 24 hours of submission of invoices, the factor must have assurance the invoices will ultimately be paid.  They also must be able to account for these payments in terms of the amount and the exact date they were paid.

Many accounts receivable factoring customers don’t understand why they couldn’t continue to receive the payments from the debtor, then forward them on to the factoring company.   The answer is simple.  Because the only collateral they have available to them is the receivables, it would be foolish to allow someone else to have complete control of that collateral.  That’s why factoring companies send letters to the debtors directing them to send payments to a lockbox that they control.

Unfortunately, there has been a lot of fraud related to factoring transactions.  some of the cases involve misdirecting of payments or even collusion between the client and the debtor.  That’s another reason why it’s so important for the factor to limit their exposure.  In the long run, these controls help all clients.

Tags: Accounts Receivable Factoring by Ozarks Capital Funding · accounts receivable factoring · factoring accounts receivable · factoring invoices · factoring receivables · receivables financing

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