Payroll taxes are very important to factoring companies. The factoring company needs to know that their client’s business has all their payroll taxes paid up to date on a regular basis. The factor has procedures in place to make sure these taxes are being paid. The reason is, the IRS does not fool around with payroll taxes. Unpaid payroll taxes are a liability that goes beyond the corporation and sticks directly to the business owner personally.
A factor is concerned because the IRS can step in and demand all monies coming into the delinquent company which would include payments on invoices where the factor has made advances. In other words, the factoring company having purchased the proceeds on an outstanding invoice would now watch the IRS collect from the account debtor. This is the worst situation to be in obviously, a client in trouble with the IRS, no funds available and behind on repayments to the factor.
So be forewarned that close attention is paid to those 941 payments. Every factoring company will be checking to make sure everything is up to date.