Factoring Companies Guidebook
Direct Receipts
Definition
This refers to situations where a debtor ignores the notice of assignment (disclosed) and continues to pay the Client. Also where on a confidential facility the debtor continues to pay direct into the Client's original bank account, instead of the Trust Account.
Concerns
The Client may deliberately and fraudulently, possibly due to cash flow pressures, seek to contact the debtors to divert funds to their own account. Such behaviour is considered to be a material breach of the facility. In the event of liquidation of a Factoring Client, these funds would not be recoverable without recourse to the customer for a second payment.
Identification
This diversion of funds can be identified through a review of the Client's bank statements, also through the debtor verification, where invoices are identified as paid although we have not received the funds.
Upward trends in debt turn can also be an indication of direct banking.
Treatment
Clearance of invoices from the ledger by the Client, by credit note is not acceptable. Clearance must be by repayment of the receipt from the Client to us. However, we should examine these payments carefully for content and frequency.
It is not uncommon for debtors to continue to pay direct to the Client's account where it is a new Client, while the notification feeds through to the debtor's accounts departments prior to amendment of their records. These payments should be remitted in a timely manner to us.
