The history of invoice factoring

The History of Factoring

Since Mesopotamian times, savvy merchants were trying to find ways to acquire the funds they needed to continue producing their goods. Fast forward about 2400+ years, and their idea is still going strong in the way of factoring.

Factoring is a financial practice that many companies use to gain access to their working capital. Businesses sell their invoices to a factor at a discount, allowing them to get a large percentage of the invoice amount within a day.

Though this great form of increasing a company’s cash flow seems to be rather unknown to some, it has actually been around for quite a while. It is said that factoring got its start in the Mesopotamian times, though didn’t become a common financial practice until just prior to the 1400s in England. When the pilgrims brought factoring with them to America, the practice really caught on as they sold raw materials to British and European merchants. Since it took so long for goods and payments to travel across the Atlantic Ocean, merchants looked to factoring to gather the means to process new orders and continue selling.

Factoring evolved over centuries, changing with the organization of companies, new emerging technologies, and development of common law framework. The modern model of factoring started to take shape during the Industrial revolution, when a customer’s credit started to become a focus.

Just prior to the 1930s, factoring boomed in the textile and garment industries, where factoring was used to help purchase raw materials to continuously produce goods without interruption.

Today, factoring continues to be a great option for alternative financing. The popularity has expanded into several industries. Businesses of many types are finding factoring to be a great way to improve their cash flow and keep their business going.

Want to learn more about factoring and how it can help your business? Feel free to contact us!