When a factoring client decides to finance their invoices for working capital to grow, they enter into a Purchase & Sale Agreement whereby they are selling the proceeds of an outstanding debt to a factoring company. Essentially the client (seller) is allowing the factor (buyer) to collect payments made towards an outstanding invoice.
Because this is an above board legal arrangement, all three parties must be aware of the agreement – this includes the customer. So the lender, whether it is a bank or a factor will send out a Notification message, either by snail mail or digitally, just to let the customer know that thanks to the partnership with a commercial finance company the factoring client has the financial backing to grow without the hindrance that comes from the lack of cash flow. The customer is instructed to make all further payments directly to the factoring company until the factor releases them from this obligation. Payments of invoices coming from customers going directly to the factor is the lynch pin of the entire process.
Once the customer has acknowledged the notification, the account debtor with good credit is ready to have outstanding invoices financed.