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Factoring History
Welcome to factoring. Whether you own a business,
look forward to building one or are looking for new financial
tools for
your current employer, Factoring can help you reach your financial
goals.
Factoring has the ironic distinction of being the financial
backbone of many of America's most successful businesess. Why ironic? Because
factoring is not taught in business
colleges, seldom mentioned in business
plans and is relatively unknown to the majority of American business people,
yet it is a financial process that frees up billions of dollars
every
year, enabling thousands of businesses to grow and prosper.
Factoring is
the process of purchasing commercial accounts receivable(invoices) from a
business at a discount. Business practices today dictate that in order to get
business you, as a provider of goods and services, must extend terms to your
customers.
These terms can squeeze the life(and cash is the lifeblood of
any business) out of a new or struggling company.
Factoring has a long
and rich tradition, dating back 4,000 years to the days of Hammurabi. Hammurabi
was the king of Mesopotamia, which gets credit as the "cradle of civilization."
In addition to many other things, the Mesopotamians first developed writing, put
structure into business code and government regulation, and came up with the
concept of factoring.
After a while, Hammurabi and the Mesopotamians went
the way of extinct civilizations, but factoring endured. Almost every
civilization that valued commerce has practiced some form of factoring,
including the Romans who were the first to sell actual promissory note 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.
Recognize that these were not banking relationships as they
exist today. If the colonists had been forced to use modern banking services in
eighteenth century England, the process would have been much slower. The banks
would have waited to collect from the European buyers of the raw materials
before paying the seller of these goods, the colonists. (And at that point, who
needed the bank?) This was not practical for anyone involved. So, just as today,
the "factors" of colonial times made advances against the accounts receivable of
clients, enabling the clients to continue with their operations, long before
they had been paid for what they were sold.
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,
inlarger numbers, as individually owned and operated entreprenurial
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 bussinesperson,
factoring is becoming an increasingy 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.
GET YOUR CASH TODAY
Call our factoring specialists at
1-866-593-2195
admin@factormoney.com
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1-866-593-2195
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"Vital Force Factoring has always provided service above and beyond any other company I have dealt with. Our account manager gives us 100% and this is only ONE of the reasons we have chosen to stay with them."
-L.P., Vice President security services company