History of Factoring
Factoring is said to date back to Hammurabi and Old Mesopotamia .
Hammurabi (ca 1810 – 1750 BC) was the sixth king of Babylon. He was credited with the major expansion of the empire and some of the earliest written codes of law.
These codes were discovered in 1901 on 12 tablets and contained 282 codes of laws. They were written in the common mans language so all could understand it. (unlike the IRS tax code today)
Some of these codes covered trade practices and have been interpreted as involving factoring.
It is said that almost every civilization since that valued commerce has practiced some form of factoring. The Romans were credited as the first to sell actual promissory notes at a discount.
The first widespread, documented use of factoring occurred in the American colonies before the revolution. During this time, cotton, furs and timber were shipped from the colonies.
Merchant bankers in London and other parts of Europe advanced funds to the colonists for these raw materials, before they reached the continent. This enabled the colonists to continue to harvest their new land, free from the burden of waiting to be paid by their European customers.
With the advent of the Industrial Revolution, factoring became more focused on the issue of credit, although the basic premise remained the same. By assisting clients in determining the creditworthiness of their customers and setting credit limits, factors could actually guarantee payment for approved customers.
This is known as factoring without recourse (or non-recourse factoring) and is quite common in business today.
Prior to the 1930's, factoring in this country occurred primarily in the textile and garment industries, as the industries were direct descendants of the colonial economy that used factoring so specifically. after the war years, factors saw the potential to bring factoring to other forms of invoice-based business and the expansion began.
Today, factors exist in all shapes and sizes: as divisions of large financial institutions or, in larger numbers, as individually owned and operated entrepreneurial endeavors.
Many of these private factors sprung up in record numbers as interest rates rose to new heights in the 60's and 70's. This trend intensified in the 80's, primarily due to the increasing impact of interest rates and changes in the banking industry.
With banks becoming too expensive and too inflexible due to heavy regulation(remember the Savings and Loan crisis?), the small businessperson was forced to find other sources of financing for expansion and growth. As more and more banks stop befriending the small businessperson, factoring is becoming an increasing popular option.
This year alone thousands of businesses will sell billions of dollars in accounts receivable, and they are doing it for profit, growth, and in some cases , their very survival.
We are in the unique position of representing factors that serve nearly every industry and because of our unique position we can help you solve your cash flow needs quickly and efficiently.
Factoring
If you have used a credit card you have been involved in factoring
- Factoring is the sale of accounts receivable at a discount to a factor for immediate cash.
- The receivables are due to be paid at some future date.
- The factor pays you for the receivable immediately and then receives payment from your customer(s) when they pay their invoices.