Factoring Companies Guidebook
Payment Clearing Houses & Discount Houses
Definition
A body through which, customers would make payments to us in respect of debts due. Debtors instead of drawing many cheques for despatch to its creditors make one payment to the Clearing House, which then in turn makes the payment to the ultimate beneficiary.
Concerns
As the debts have been purchased by the Factor, it is a breach of the Agreement for the debtors to pay a third party. If the Clearing House ceases trading, we may find it difficult to retrieve any funds due to it, if the debtors have already made payment to the Clearing House, without resorting to legal action.
Where the debtor only makes one payment to the Clearing House for settlement of all its purchases, so too the Clearing House would only makes one payment to us, which may involve settlement of a number of invoices from multiple debtors. Unless the names of the individual Clients, debtors and invoices are clearly stated on the remittance advices, the allocation of the funds may be very difficult, causing problems not only for us, but also for the Client and its debtor.
Where payment is made through a third party we would need to ensure that we receive payment for the full debt and do not incur any erosion due to the Clearing House deducting fees or commissions for their services, from the debtors funds.
Identification
Examine remittance advices to determine the source of the funds in comparison to the ultimate debtor. Where the factor undertakes the credit control, any indications that the debtor has paid a third party should be recorded along with the name of that third party.
Industries where Payment Clearing Houses appear:-
- Automotive
- Rag Trade/Clothing
- Shoes
- Books/Publishing
Payment Clearing Houses
- BSSA (BSSA Financial Services Ltd)
- British Hardware Foundation
- Factoring Services Group (F.S.G) factor as in Motor Factor.
Treatment
Consider making this debt 'Non-Notifiable' or at least, reserve in full any such balances.
