Factoring companies, how did factoring companies start and how have factoring companies grown to their current market dominance.
Factoring companies are now universally accepted as vital to the financial needs of small and medium-sized businesses. Factoring companies have the support of government offices and central banks throughout the world. But how did factoring companies start and how have factoring companies grown to their current market dominance?
Factoring companies produce immediate cash payments to a company at the time of shipment, delivery and invoicing a customer. In its basic form, factoring companies, provide services known as invoice factoring, invoice discounting, invoice finance and account receivable factoring. Factoring companies have been used by American business since Colonial times, and factoring companies origins go back even further, literally thousands of years to the early days of commerce.
Factoring is said to date back about 4,000 years to the cradle of civilization, Bronze Age Mesopotamia, which included the Akkadian, Assyrian, Babylonian and the Sumer empires.
Later it was the Romans who began selling promissory notes at a discount – yet another form of factoring (still provided by factoring companies today). However, the first documented use of factoring companies is said to have occurred in America some time before the American Civil War, when animal furs, cotton, and even materials such as timber were shipped from the colonies to Europe using intermediaries or factoring companies.
Others will tell you to look back in British history to the sixteenth century, when the new territories like the USA were being opened up and when most manufactured goods for those territories came from Europe. Owing to the slow communication and transport of these times, to sell in another territory it was a necessity to appoint an agent in the territory to find the customers, sell and deliver the goods for the principal and hold the principal’s goods on consignment. This is thought to be the first real factoring companies.
The early Factoring companies combined trading, banking, accounting and shipping to facilitate trade and open up new commercial frontiers. Several commission companies (Factoring companies) were formed in New York and were backed by European merchants and producers in Manchester, Liverpool, London, Paris, Lyons, Zurich, Hamburg, Bremen, Cologne, Amsterdam, Rotterdam, Antwerp and numerous other trading cities.
A great illustration of the role of Factoring companies is the “cotton-Factors” in the United States in the early 19th century. Cotton was exported from the South to New York and Europe. Eighty percent of the U.S. cotton crop was sent to Europe. Extended transportation and warehousing periods caused long delays from the harvest until the payment from the spinning mill. Thus, the need for factoring companies to advance money against orders became very important to the growers so the growers could continue operations while waiting for the payment the funds to travel back to them.
It is said that almost every civilization since that valued commerce has practiced in some form of factoring.
Today factoring companies provide a valuable global financing tool. Factoring companies are now universally accepted as vital to the financial needs of small and medium-sized businesses. Factoring companies have the support of government offices and central banks throughout the world.