History of Factoring
The history of factoring can be traced all the way back to the very beginning of written records. It has been with us a very long time.
History of Factoring
The beginning of factoring dates all the way back 4000 years to the time of Hammurabi and the Mesopotamians. This was when the first written invoices were used and business lending and Government regulation all seem to date from this time. The first evidence of factoring can be found among this ancient stone tablets. The history of factoring is very much the history of business itself.
There is evidence of factoring in every culture where there are remains of written invoices and ledgers. In Rome, the first evidence of the purchase of promissory notes at a discount can be found. There is little doubt that factoring has been around for as long as business has existed. The history of factoring is very much the history of business itself.
The type of factoring that exists in the United States today had its origins in the colonial days. Colonials were producing goods that were being sold in England. The finished goods had to be sent to a port and put on one of those creaky wooden sailing ships to be carried to the Mother Country for sale. The poor Colonial was not extending generous payment terms to be competitive, they were not going to be paid for quite some time simply because it took a long time to sail across the ocean, sale the goods, and sail back across the ocean with the money.
The factor solved this time problem. They were actually providing payment to the supplier so they could continue with their business and survive while the boat was crossing the ocean. The factor, of course, was not actually buying the goods. They were not the same as exporters. They were advancing the funds at a discounted rate. Although there seems to be a fine line here, it was the assumption of the risk of non-payment that made the major difference.
As time passed and we moved into the modern era of instant communication and a shrinking world, factoring has continued to play an important role in the business world. The need for cash flow is still a major part of any business and the buying and selling of accounts receivables has remained a viable answer to this problem. The increasing interest rates that marked the 1980's and 1990's led to an increase in the number of new companies turning to the factoring business. Factoring was a way to raise quick capital in a manner that was called "off the balance sheet" financing. Since accounts receivables are an asset account, factoring was a way to raise quick cash without adding the liability of a loan.