A type of factoring in which the buyers (end customers) are notified that their accounts (i.e., payables) have been factored- i.e., sold to a factor. In other words, the debtor receives a notification (notice of assignment) that the benefit of the obligation (the receivables) has been transferred to a new party (the factor). The buyers normally furnish the factor with delivery receipts, an assignment of the accounts and copies of the invoices, indicating to the supplier that their accounts have been purchased by the factor.
Generally, factors (factoring firms) handles everything related to collecting the debt directly from the debtors of a client (the seller of accounts receivable). Notification factoring can undermine a seller’s customer relationships because of the undesired transparency that this type of factoring creates in the market (where details about indebtedness of a customer become known to a third party). This situation is usually avoided by the opposite type of factoring known as non-notification factoring.
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