Factoring

Effect of notice of assignment

 

Debtor must pay the factor

Upon the receipt of the notice of assignment only payment to the factor will constitute a valid discharge of the debt.

Should the debtor pay the client and client does not refund the money to the factor, the factor can claim from the debtor if he cannot recover money from the client.

Hence, debtor may have to pay a second time!

However, this may result in a demise of the factoring industry, if the factors are trigger happy and pursue against the debtors as  more and more debtors will object to factoring.

Notwithstanding their rights against the debtor for second payment, experienced factor normally adopt  preventive measures to ensure that the occurence of this event is rare so that it will not have negative impact on the industry. Factors normally have good collection procedures and reinforcement letters sent to debtor when payment to client is detected and  debtor will be removed from factoring if it continues to make payment to the client despite reminder. Demand for second payment is only enforced as a last resort. Inexperienced factors which are trigger happy would create serious problem to the industry. .

Date of notice of assignment

Once the debtor receive the notice assignment he cannot set off against any equities (claim) arising after the notice of assignment.

Effect of introductory debtor

Factor normally sends an introductory letter at the outset of the factoring arrangement. It is pertinent to note that the introductory letter cover exiting debts (initial debts) at the time of the notice and it does not cover future debts.

Notification legend/stamp on invoice

Notification of the assignment is done by way of client affixing the notification legend on each invoice.

Notice of assignment on statement of account

What if the client omits the affixing of the assignment on the invoices?

Factor has another layer of protection through their monthly statement of account. In the statement of account, there is the notification which is printed in bold that the invoices listed in the statement of account have been assigned to the factor and only payment to the factor will constitute a valid discharge of the debt.

Reinforecement letter of assignment

Should debtor deny the receipt of the notification, factor would usually send a letter reinforcement letter of assignment attaching the statement of account .