One of our officers met with a prospect today and she advised me that he has a full time job but also owns and operates a small bridge loan/factoring company advancing against accounts receivable. He stated that he cashes checks randomly to pay investors interest who have advanced money. The officer said the checks would be a couple thousand dollars a month, but might increase over time.

It seems unusual to me that he would pay investors with cash. Anyone have experience with this type of customer? Does this seem reasonable?

This does not seem reasonable at all.

^ Agreed. Investors are not typically paid in cash regardless of the type of business.

Not a good idea to bank them

That is a very non typical casual factoring arrangement.

Dare I ask, what are the "accounts receivable" for?

Have you seen those infomercials for buying receivables from businesses? One of those money making schemes. That is what this sounds like, and the receivables could be anything.

A true factor moves the money electronically, or at least through a bank.