The most important risks of a factor are:
- Counter party credit risk: risk covered debtors can be re-insured, 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, unassigned credit notes, etc. A fraud insurance policy and subjecting the client to audit could limit the risks.
- Legal, compliance, and tax risks: a large number and variety of applicable laws and regulations depending on the country. Continue reading What has the highest interest rate? 1 payday loans 2 bank loans 3 credit cards