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What are the potential risks/disadvantages of Factoring?

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Expense: Factoring has become a highly competitive business and, as a result, factors must generally offer reasonable prices in order to compete. Using a factor, however, can still prove expensive. Despite the potential for quick cash, the interest charges and administrative fees of a factor may prove cost prohibitive for your business.
Loss of Ledger Control: Administrative ease was mentioned above as a potential benefit of factoring, particularly for a small company that struggles with its accounts receivable. However, such freedom from the concerns of account collection comes with a price, for the factor assumes at least partial control of your business ledger.
Customer Relations: Once the factor purchases the account, it assumes responsibility for the collection of that account, which means that the factor deals directly with your customers. You must therefore consider the possibility that the factor�s dealings with your customers may damage your relationship with those customers. Additionally, if a certain customer wishes to deal directly with you, your use of a factor may cause your customer to question your dedication to their needs.
Unwelcome Advice/Interaction: Using a factor brings a third party into the equation, one which both you and your customers will deal with frequently. Because of its interest in the collection of an account receivable, a factor may offer you -- or your customers -- business advice in an attempt to influence your business decisions.

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