There is no denying that tax underwriting is fundamental for any lender. Being able to review real-time IRS data provides the clarity and confidence needed to protect their interests in conjunction with other due diligence on key data points within each factoring client.
To manage risks effectively, factors need to follow several critical due diligence steps. These steps ensure a thorough understanding of their client and help maintain a secure and productive factoring relationship.
The first step is confirming the client's legal and operational names. This verification helps uncover any discrepancies or hidden issues, ensuring the factoring company is dealing with a legitimate entity and reducing the risk of fraud.
Maintaining up-to-date debtor credit information is essential for managing risk and liabilities. Keeping track of changes in debtor credit helps prevent risks tied to insolvency and non-payment from a factoring client’s customers. Understanding the financial stability of the client’s customers further aids in assessing overall risk. By evaluating the creditworthiness of account debtors, you can ensure that the invoices being factored are likely to be paid on time.
Using tools like TaxNow to identify IRS tax issues early on is crucial. By monitoring clients' tax status, factors can detect potential IRS liens before they are officially filed, allowing for proactive management of any arising issues.
Conducting comprehensive lien searches is essential to avoid unexpected claims on receivables. Factoring companies should regularly check for liens from other creditors that could affect their priority on the client's assets.
While all diligence and intelligence are important for lending, IRS data has a significant impact on factors’ claims on purchased receivables. Utilizing proactive tax monitoring with TaxNow provides factors with timely updates and insights, preventing unexpected financial losses and ensuring a stable factoring relationship. By staying ahead of potential tax issues, factors can mitigate risks and maintain their financial stability.
Implementing robust underwriting and due diligence processes, especially regarding tax liabilities, is key to maintaining strong and secure factoring relationships. Factoring companies that prioritize thorough enhanced tax due diligence are better positioned to protect their interests and foster long-term, beneficial partnerships with their clients.
