Invoice Factoring | Notice of Assignment

If you’re a business owner considering invoice factoring, the Notice of Assignment (NOA) may cause you some concern. What will my customers think? Why is it necessary? Can we skip sending it? Let’s address these questions to clarify what the NOA covers and put to rest any lingering apprehension.

What is a Notice of Assignment?

The notice of assignment (NOA) informs your customer that a third party (bank, financing company, or factoring company) will manage and collect your accounts receivable (AR) going forward. The NOA arrives in the mail in the format of a letter, as the initial communication notifying your customers of the change in structure and process.

What will my Customers Think?

Tremendous growth in the use of invoice factoring across many industries has made factoring more common than ever. According to the Global Factoring Market 2016-2020 report, analysts expect factoring to grow over 10% annually for the next several years.

Many of our factoring clients work with Fortune 500 companies who simply demand longer payment terms in order to do business. Clients using invoice factoring often show an appetite for accelerating growth and more efficiently managing operations and collections.

In short, you are most likely more concerned about it than your customers. Factoring is a widely used and acceptable means for financing your business.

Why is a Notice of Assignment Important?

In a factoring relationship, a business sells the future collection of accounts receivable (AR) in exchange for cash advances. So, the asset (future AR) belongs to the third party upon completion of the work or delivery of the goods. The business receives the cash advance and the third party waits for payment by the business’s customer.

Due to the intangible nature of AR, the third party provider needs legal language showing ownership of the AR. Thus, the legal language found in the NOA minimizes the risk placed on the third party provider. Third party providers require a NOA. It is critical to the structure of the factoring relationship and protects the third party provider in the event of misdirected payments.

What is Covered in a Notice of Assignment?

The main points covered in a Notice of Assignment include:

  1. Business’s accounts receivable has been assigned and is payable to a third party provider
  2. Updated payment address, typically a lock box
  3. Liability on the customer in the event of misdirected payment

How we’re Different

By working with The Southern Bank, your customers recognize the reliability and stability of your financing partner. Rather than receiving a NOA from an unknown entity or independent financing company, the bank’s reputation as the lender of choice strengthens your customer relationship.

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Is Invoice Factoring “Float” Costing You?

Every invoice factoring company structures a deal a little differently, so it’s often difficult to compare proposals. By focusing on a few key aspects of invoice factoring agreements, we aim to help business owners make better, more informed financing decisions. We’ll be taking a closer look at four important areas of an invoice factoring agreement: exit terms, float, fee structure and notice of assignment.

“Float” tops the list of often unnoticed or misunderstood variables affecting the true cost of an invoice factoring arrangement. In fact, float days combined with common factoring pricing structures can increase your financing costs by more than 40%.

What is Invoice Factoring Float?

In finance, the term float can mean a lot of things. In invoice factoring relationships, float refers to the difference between the time the finance company receives a payment and when it gives the factoring customer credit for the payment.

Putting it in simpler terms, when payment is made by check or ACH, the transfer of money from bank account to bank account does not happen instantaneously. Instead, payments take a certain amount of time to clear. This period is often referred to as the float.

What are Float Days?

In a contract, float days are a time allowance for check clearance and may also be called clearance days.  A specific number of float days will be outlined in the invoice factoring contract. Look for these in the fine print – float days are likely to be left unexplained and accepted at face value, but it’s important to recognize their impact.

Are Float Days Standard in Contracts?

Yes, float days are always present in invoice factoring agreements. First and foremost, the float provision helps protect the lender from bad checks or payments. Secondly, the lender continues to accrue interest during the float period. Three days is an industry standard, but longer terms of up to five float days is common.


invoice factoring float


How do Float Days Affect my Financing Rate?


Float days are additional calendar days tacked on to the date the payment is received. In financing relationships with simple interest rate structures, float days are relatively harmless.

However, in factoring relationships with tiered fee structures, float days can have an enormous negative impact on your true financing costs. In these structures, the float is akin to a hidden fee that many factoring companies utilize to increase their returns at the borrower’s expense.

Let’s take a look at a real world example. Here’s a fee structure one of our customers had with an independent factoring company:



In this same contract, the factor had a 3 day float provision. 3 extra days of fees after a customer payment was received. No big deal, right?

Wrong. The impact of this tiered pricing structure with a 3 day float provision increased their annual financing costs by 42%. And the worst part was that they had no idea how or why.

A Deeper Look

This particular company had two large customers that were on Net 30 terms. These companies paid like clockwork via ACH on either day 28, 29, 30. According to the rate table above, an invoice received on day 28 would appear to be charged a factor fee of 1.50%. However, with a 3 day float the invoice is actually not credited until Day 31. The resulting factor fee is actually 2.50% of the face value of the invoice. What may seem like a small three day hold period actually equates to a 66% higher fee on those on time payments.

With these two large, prompt paying customers making up a significant portion of their business, the company’s annual financing costs were 42% higher – an increase entirely due to a tiered rate structure and 3 extra days of float.

The Impact of Float on Rate Table


Why Isn’t Float Discussed?

Most invoice factoring clients can tell you their discount rate, but don’t understand the impact of float. Float is often left out of conversations and proposals, and often unrecognized by borrowers well into a factoring relationship.

Since float days equate to higher fees, the topic is rarely discussed in significant depth. However, business owners should run the numbers to fully understand what the effective rate will be once float days are added into the calculation.

How we’re Different

Here at The Southern Bank, we put an enormous emphasis on pricing transparency. Our goal is to ensure each customer knows exactly what they’re paying.

As such, our factoring program provides immediate reconciliation and application of debtor payments. More simply, when your customer payment arrives for a factored invoice in our lockbox or bank account, the interest and fee clock stops. Regardless of how long the money actually takes to “settle,” you receive credit for the payment the day it arrives.

This means, no more factored invoices mysteriously floating to hire fee rates, no more confusion, and at the end of the day – lower costs.



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What is Invoice Factoring?

Invoice Factoring Overview

Invoice factoring is a financing arrangement that gives a business fast access to cash. Many small businesses in need of working capital utilize factoring as a reliable alternative to a traditional line of credit. When cash flow strains a business, invoice factoring unlocks the value tied up in the business’s accounts receivable. Also, the term factoring is often used interchangeably with accounts receivable financing. For a more detailed look at How Factoring Works, Is Factoring the Right Fit, and the Costs of Factoring  see the bank’s invoice factoring section of the site.

How Does Invoice Factoring Work?

An invoice factoring arrangement involves three parties: The Business (the seller of invoices), The Business’s Customer (the debtor) and the Factor (factoring company).

A business sells its invoices to a third party financing partner (factor). Rather than waiting 30, 60 or 90 days for a customer to pay, funds are available to the business within 24 hours.


Invoice Factoring in Five Steps


Factoring improves cash flow management for new and growing businesses. In addition to providing working capital, it also supports the business with credit verification and payment collections functions.

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Factoring Rates: Factors at Play

What Determines Invoice Factoring Rates?

In invoice factoring, a business sells its accounts receivable to a third party factor in exchange for a cash advance. The factor awaits payment from the customer and then withholds a small service fee, known as a factor fee. The factor fee equals the discount rate charged on the face value of the invoice. Every factoring company determines factoring rates in their own way. The primary drivers include: size of a business’s borrowing need, creditworthiness of a business’s customers, age of receivables and whether all or select invoices will be financed.


Size of the Borrowing Need

The size of a business and its associated borrowing need are primary factors contributing to a factoring rate. As general parameters, annual revenue of $1,000,000 to $50,000,000 and a borrowing need of $30,000 to $5,000,000 describe a potential business fit for invoice factoring. As volume increases and growth ramps up, an accounts receivable line expands with a business. With growth and expansion come savings due to scale. More money being borrowed makes it easier for the lender to cover the costs associated. Thus, expect a lower rate as the borrowing need increases.


Creditworthiness of Customers

The credit strength of a business’s customers also affects a factoring rate. Large corporations, government entities and many of the best customers often demand longer payment time frames. These customers maintain solid credit profiles and a high likelihood of repayment. In instances like this, a business can leverage the strength of its customers’ credit profiles to secure financing. As one of the most important factors, the credit data of a business’s customers closely correlates to the factoring rate.


Average Age of Accounts Receivable

The weighted average of all outstanding invoices or “how long it takes customers to pay.” In keeping with the time value of money theory, money available at the present time has more value than the same amount in the future. Accordingly, the factoring rate decreases if the customer pays in 15 days versus 45 days.


Group or Select Invoice Financing

Some factoring companies only buy accounts receivable in entirety, while other factoring companies give clients the choice of selling select invoices. Often the baseline assumption presumes that all invoices will be financed, so if not the rate may increase.



Comparing invoice factoring costs across lenders can be difficult because different terms, rates and fees will be specific to each lender. Keep the four factors above in mind and engage with a transparent lending partner.


At The Southern Bank Company, our successful 80-year banking history exemplifies our commitment to treating customers fairly and with the utmost transparency. Through our altLINE program, we provide competitive and straight forward accounts receivable lines.

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Accounts Receivable Financing Buyer’s Guide

If you are like most small business owners, securing financing often involves emotions ranging from uncertainty to frustration as you navigate the alternatives. In addition to your daily job responsibilities, the demands of evaluating borrowing options can be stressful and overwhelming. This straightforward buyer’s guide serves as a starting point to help you with the decision making process around choosing an accounts receivable financing partner.

What is Accounts Receivable Financing?

A/R financing allows a business to receive cash in advance of the payments due from its customers on open invoices. Rather than waiting 30, 60 or 90 days to be paid, the business can present open A/R to its financing partner and receive money within hours. By utilizing Accounts Receivable financing, businesses can accelerate their cash flow helping them make payroll, purchase new inventory, take on new contracts, and generally grow more sustainably.

Accounts Receivable financing is a term that is often used interchangeably with invoice discounting, factoring, and even asset based lending in some instances. With each lender using different terminology and different practices, selecting an A/R financing provider can be confusing. This guide will help you ask the right questions and select the best A/R financing solution for your business.

If you’re interested in learning more about the different types of lenders take a look at Exploring Your Options for Business Financing.

12 Questions to Ask an A/R Financing Partner

  1. How is my credit line established?

    Desired Answer: In A/R financing, your credit limit should be based on the credit strength of your customer and your business’s projected revenue.
    Red Flags: Traditional underwriting criteria like operating history, profitability, ratios, etc. don’t allow your business to benefit from the flexibility of A/R financing.

  2. Where do you get your funds?

    Desired Answer: The financier has a direct source of funds and lends those funds to you (banks or established financiers lending their funds to you).
    Red Flags: The financier borrows money making them a middleman. Whether they’re borrowing from a bank or private investors these costs are passed on to you. Even worse, the availability of these funds is not guaranteed.

  3. How quickly is my funding available?

    Desired Answer: A best in class A/R financing provider will ensure funds are in your account 12 – 24 hours after you’ve financed your receivables.
    Red Flags: Two to three days. If you’re funding with an independent financing company as opposed to a bank, these funds can take longer to clear. Don’t forget, any wire fees will be passed on to you, so ask about ACH fund transmission.

  4. How quickly are payments from my customers applied to my balance?

    Desired Answer: Immediately upon receipt.
    Red Flags: Any clearance days cost you time and money. Again, funding with a bank or with a provider that has a close relationship with a bank reduces holding periods and interest.

  5. What are all the fees associated with your financing?

    Desired Answer: Interest and/or discount fees only. The more straightforward the pricing structure, the more predictable the financing costs and cash flows.
    Red Flags: Any additional transaction fees, ACH fees, lockbox fees, service fees should be red flags. Origination fees and termination fees can sometimes be negotiated.

  6. What’s the term on your typical contract?

    Desired Answer: One year or less. If the financier requires a two-year commitment, keep looking.
    Red Flags: Two years or more. Flexibility is the name of the game. Don’t lock yourself in needlessly.

  7. How long has the financing company been in business?

    Desired Answer: While the length of time a financing company has been in business is not always a barometer for quality, it’s important to find a financier that has a proven and stable operating history.
    Red Flags: Start Ups. There are few barriers to entry for accounts receivable financing providers which unfortunately means a number of under-qualified partners. You don’t want your financing partner to go out of business and put you out of business in the process.

  8. What are your funding or lending limits?

    Desired Answer: Whether it’s one hundred thousand dollars or one hundred million dollars, all financing companies have a limit. If your company grows past that limit, there is likely a contingency plan, but at this point you simply want the financing company to be open and honest with you.
    Red Flags: “We don’t have a limit. We can do it all.” This is simply untrue. Everyone has a limit and you should push on sales people that try and state otherwise

  9. What are your funding limits for each company’s customer?

    Desired Answer: Similar to the answer above, you want your funding provider to outline how credit limits are established for your business’s clients.
    Red Flags: Ambiguity. Are they unclear? Is there no process in place? If so, ask to speak with their underwriter or the person making credit decisions.

  10. How will you interact with my customers?

    Desired Answer: In A/R financing relationships, there is interaction between the financier and the company’s customer at some level. Clarity, justification, and confidence in a funding provider’s process is crucial.
    Red Flags: Heavy handed responses and unclear responses are equally troublesome. If the financier is avoiding the question or claims there is no interaction, watch out. Similarly, good financiers understand it’s a partnership and not an adversarial relationship.

  11. Is any part of your operations outsourced to third parties?

    Desired Answer: No. Everything from sales, to credit, to accounts receivable management is in house.
    Red Flags: Yes. Some funding providers, may utilize lending “platforms” that are really a third party servicer (i.e. BusinessManager). Ideally, most companies prefer to work with full-service shops rather than those that may outsource crucial practices and processes.

  12. What reporting will I have access to?

    Desired Answer: Direct access to your account statements and open invoices via an online platform is a must.
    Red Flags: Reports are provided on demand and as needed. This leaves the financing party in a position of power and more often than not leaves customers in the dark.

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Things to Look for in a Factoring Company

Is your business currently factoring its receivables? Are you thinking about engaging in a factoring relationship? If so, there are a couple of things you need to look out for when evaluating potential funding partners and their factoring contracts.

1. Flexibility

First and foremost, don’t get locked in to a long-term contract. Contracts with one year terms are one thing and should be expected. Contracts with multi-year terms and significant or even undefined termination penalties should be avoided like the plague.

Similarly, if your factoring agreement states that you must sell all of your receivables regardless of your need to do so, you should start looking around. Your factoring arrangement should mimic the flexibility of a traditional line of credit.

If your factor is not open to discussing these terms, shop around and keep looking.

2. Direct Source of Funds

Why is it important to understand where your factor is getting their money? Because like all supply chains, more middlemen likely equates to more costs passed on to the end user.

If your factoring company is borrowing its money from a bank and then utilizing its line to purchase your receivables, then there are two important things to note:

  • The cost of borrowing their funds from their bank is likely passed through to your business in the form of higher rates.
  • The stability and security of your funding is reliant on your factoring company’s ability to remain in the good graces of their bank.

The easiest way to ensure your factor is providing a direct source of funds is to work with the source of funds itself – a bank. Alternatively, if your factor is an independent financing company, ask where they get their funding from and how long they’ve maintained that relationship.

In the event of economic turmoil, you’ll want to know that your financing partner won’t be cut off.

3. Professionalism

Whichever company you choose to factor your receivables, ensuring that your counterparty is a qualified, respected, and professional organization is easily the most important attribute of a successful factoring relationship.

How do you know if your factor is reputable? Just look at their interactions with your business in the buying process.

  • Are they not only knowledgeable about their own products but your business as well?
  • Is their pricing straightforward with no lockbox fees, transaction fees, clearance fees, etc.?
  •  Are they responsive to your calls, emails, and questions?
  •  Would you hire them for your business?

Rate is important, keeping your customers happy and loyal is critical. Don’t shop solely on price and make sure your factoring company is who you want representing your business.

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Tips for Improving Customer Payment

For many companies Accounts Receivable collection can at best be described as a chore and at worst as an anxiety-inducing experience where one large delinquent customer can put their own business in jeopardy.

As a bank that offers factoring, or Accounts Receivable financing, The Southern Bank has a wealth of experience optimizing accounts receivable collection and in turn cash conversion for our customers. As such, we quizzed our Accounts Receivable collection team here to garner some advice in improving customer payment.

Develop the habit:

All too often, business owners ship product or provide the service and hope for the best. Like developing any other healthy habit, it’s necessary to block off time either every day or week to collection, so that it becomes second nature. Consistent, respectful, and friendly communication is key to ensuring a strong working relationship with your customer’s payable department.

Invoice accuracy

Check, double-check, and confirm invoice accuracy. Make sure payment terms, remit to addresses, and invoice destinations are correct. Maintain a system that ensures your invoice and payment doesn’t get lost. In A/R collection, time is truly money so don’t cause the delay with an invoice error.

Manage expectations and train your customers:

Be consistent with your customers. Calling haphazardly and collecting aggressively based on your own cash needs will only cause confusion and strain. Companies like to buy from suppliers that make them easy to buy from. By sticking to your contract and internal process, your customer will be better prepared and willing to remit payment on time and with less effort.

Smile and dial:

Not just a phrase for sales, collecting payment can at times be difficult no matter how solid your process. Your customers likely have other vendors, their own delinquent customers, and their own cash balance to work with – smiling, maintaining a positive attitude, and listening goes a long way in facilitating payment.

Don’t be blind

It’s easy to ignore and hope for the best when faced with delayed payments. While no one likes to face the likelihood of a write-off, the sooner you communicate concerns with a delinquent customer, the sooner you will resolve the issue. Don’t let a bad customer put you out of business, monitor all your customers’ payment behaviors and be prepared to respond to any negative trends.

If long payment cycles or Accounts Receivable collection remains a challenge for your business, you might be a good candidate for The Southern Bank’s Cash Flow Management program. Contact us today and we’ll fill you in on how we help businesses accelerate payment and improve their financial health.

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Five Causes of a Cash Crunch

Healthy cash flow is the lifeblood of all businesses. Without adequate reserves of cash, owners stay awake at night thinking about debt coverage, meeting payroll, dwindling inventory levels, covering taxes, etc.

While The Southern Bank’s clients are each unique, there is typically one of five key causes for their liquidity concerns. These include:

1. Rapid Growth

On the surface, growth can hardly be viewed as a bad thing, but unanticipated or swift sales can potentially put a company out of business. More sales means more inventory, more people, and the need for more money. If your revenue is growing, but your working capital stays the same, that next big customer order you fill could leave you short on cash for your next supplier payment, tax bill, rent check, or loan payment.

2. Expanded Product Offerings

In addition to revenue growth, new projects and new products can require a substantial investment. Delays in launch, unsuccessful initial sales, and development related expenditures can devour a company’s cash balance. Diversifying your offering is a viable and often game-changing strategy, not having a cash safety net in place prior to doing so can be deadly.

3. Seasonality

Perhaps the most common cash crunch amongst customers, excessive seasonality can wreak havoc on a company’s balance sheet. Large cash needs followed by significant cash inflows followed by a quiet season can make planning difficult if not impossible to predict. Having a flexible financing and working capital solution in place can allow business owners to take advantage of seasonal sales rather than succumb to them.

4. Delayed Customer Payment

Customers extending their payment terms is quickly becoming the norm. As large multi-national businesses continue to stretch their suppliers, the smaller, regional suppliers of raw goods and services are now experiencing the ripple effect (read more about Longer Payment Trends here). Whether it’s a delinquent customer or a customer with buying power and long-terms, delayed customer payment can cause an enormous strain on your own cash conversion.

5. Unexpected Events

Abnormally large tax bills, law suits, customer bankruptcy, inventory obsolescence… there’s really no shortage of things that can simply go wrong. No matter how much preparation or cash reserves you have in place, there is always the potential for your cash position to be consumed by an unexpected event and for your business to go from healthy to distress.

Whatever the cause may be, The Southern Bank’s Cash Flow Management program works with companies to put their business back on stable ground. We fund working capital needs through a variety of traditional and non-traditional bank products and services.

Whether it be a traditional line of credit, an asset based line of credit, a factoring line, or some combination of the three, you can expect The Southern Bank to develop a cost-effective solution that relieves the cash crunch and gets you back to doing what you do best – running your business.

Contact us today and start funding your business.

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Cash Flow Problems and Customer Payment

What do ad agencies, staffing companies, manufacturers, and contract research organizations all have in common? In addition to supplying products and services to Fortune 500 companies, they’re all subject to the same strain caused by one of the latest trends in corporate finance – longer payment terms. More often than not, cash flow problems and extended payment terms go hand and hand.

While supplying large, credit-worthy customers can propel small businesses to great success, these same customers often maintain and leverage an enormous amount of power in negotiations with their smaller suppliers. In addition to price, suppliers are often forced to make concessions to their buyers in the form of longer payment terms.

By collecting cash from customers faster and withholding payment to suppliers longer, large companies are able to increase their own cash positions and redeploy that money for their own benefit (increase dividends, initiate stock buybacks, invest in their supply chain, hire new employees, etc.). Essentially, powerful buyers are utilizing their suppliers as a free form of debt. For example, Proctor & Gamble has moved from 45 day terms to 75 day terms, GlaxoSmithKline is shifting from 60 to 90 day terms, and Mondelez International is extending terms all the way to 120 days.

The strain this inflicts on the supplier is undeniable. Once healthy businesses find themselves with cash flow problems and the inability to pay their own suppliers, take on new orders, pay their employees, and in many cases – keep their doors open.

What can be done?

The business owner that finds him or herself on the wrong end of a one-sided buyer/supplier relationship with little hope to negotiate has a few options. Some of which include:

  • Firing the customer. This of course assumes dropping the customer will not cripple the business’s growth or long-term viability.
  • Growing their own cash reserves. Perhaps the cheapest and most difficult way to solve cash flow problems is to reduce cash outflows. Whether it be cutting costs, delaying payments, or collecting other receivables faster, companies must make difficult decisions in order to conserve cash.
  • Asking their supplier if they offer supply chain finance. Many large buyers are offering to finance their supplier’s working capital through prearranged agreements with 3rd party banks. These rates are typically much lower than what the small business could secure on its own.
  • Consulting a bank. By partnering with a small business lender like The Southern Bank, companies can increase their working capital through a variety of products and services that prevent dangerous cash crunches while continuing to supply their large strategic customers.

If your business is faced with cash flow problems or you’re interested in increasing your cash reserves through bank financing, please contact us today.

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