Posted in Finance, Accounting and Economics Terms, Total Reads: 324
Definition: Non-Notification Loan
In the simple terms Non-Notification Loan is type of loan that is securitized by accounts receivable. So to understand it better, suppose a company gives products to its customers on the basis of credit, so the customer makes payment on a monthly basis. In the meantime the company procures raw materials from its suppliers in the form of credit only and so uses the payment from debtors to finance the suppliers.
So this is a non notification loan as the company doesn’t notify the debtors about this type of loan. So even if the customers don’t pay the payments on a timely basis, the company is still liable to pay to the suppliers on a timely basis. So in a way non notification loans do not transfer the risk to a third party.
So this is like a cycle, whereby the debtors make payments to the company for its loan and the company makes payments to suppliers of its loan to repay its financing. Commercial banks and also many financial companies and institutions are the major places where these types of loans originate. They used these loans backed by Accounts receivables as the RBI wouldn’t provide notes on the backing of A/R notes. And in today’s times non notifications loans are important type of financing option.