Payment redirect

Instructions telling the customer where to send payment after invoices are assigned.

Why it matters

Incorrect or unauthorized payment redirects can create disputes between the seller and the factor over misdirected funds. Payment redirects may occur when the seller changes banking relationships, the factor changes its lockbox, or a customer ignores the NOA and pays the original invoice address. Each redirect event requires reconciliation to ensure the factor receives the funds it is owed. Persistent redirection issues can strain the factoring relationship and trigger audit provisions in the agreement.

How it appears in contracts

Payment redirect provisions appear in the Payment Direction or Collection Account section of the factoring agreement. The agreement should specify the process for updating payment instructions when the factor changes banking details and how long the old account remains active. Sellers are typically required to notify the factor of any payment redirect events within a specified number of days and to forward misdirected funds within a specified period. Willful redirection of funds away from the factor may constitute a breach of the factoring agreement and, in some circumstances, fraud.

Related terms

Related article: Notice of assignment

Related reading

Sources

  • Uniform Commercial Code Article 9 - Uniform Law Commission. Accessed 2026-05-19. Reference for secured transactions concepts including receivables and filings.
  • International Factoring Association - International Factoring Association. Accessed 2026-05-19. Industry association source for factoring terminology and industry context.
  • Secured Finance Network - Secured Finance Network. Accessed 2026-05-19. Industry education source for secured finance and asset-based lending context.
Financial disclaimer. This page is educational only and is not financial, legal, tax, accounting, or credit advice. Factoring terms vary by provider and contract. Read the full disclaimer.