Risks
The most important risks of a factor are:
- Counter party credit risk related to clients and risk covered debtors. Risk covered debtors can be reinsured, which limit the risks of a factor. Trade receivables are a fairly low risk asset due to their short duration.
- External fraud by clients: fake invoicing, mis-directed payments, pre-invoicing, not assigned credit notes, etc. A fraud insurance policy and subjecting the client to audit could limit the risks.
- Legal, compliance and tax risks: large number of applicable laws and regulations in different countries.
- Operational risks, such as contractual disputes.
- Uniform Commercial Code (UCC-1) securing rights to assets.
- IRS liens associated with payroll taxes etc.
- ICT risks: complicated, integrated factoring system, extensive data exchange with client.
Read more about this topic: Factoring (finance)
Famous quotes containing the word risks:
“There are risks which are not acceptable: the destruction of humanity is one of them.”
—Friedrich Dürrenmatt (1921–1990)
“There are risks which are not acceptable: the destruction of humanity is one of them.”
—Friedrich Dürrenmatt (1921–1990)
“If the children and youth of a nation are afforded opportunity to develop their capacities to the fullest, if they are given the knowledge to understand the world and the wisdom to change it, then the prospects for the future are bright. In contrast, a society which neglects its children, however well it may function in other respects, risks eventual disorganization and demise.”
—Urie Bronfenbrenner (b. 1917)