A Brief History of Factoring

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Keeping a business going during the time gap between delivering a product or service and getting paid for it is not a new challenge for people in business. This gap in revenue – and the financial difficulty that it can bring – is as old as recorded business transactions.

Factoring in the year 2000 BCE

In the ancient Middle East, some merchants used a variation of factoring to get paid in advance for their goods in transit. For a portion of the expected payment from the buyer, a third party would pay the merchant and collect from the buyer. Factoring was also used in ancient Rome.

Factoring 1400s to 1600s AD

Factoring evolved and factors (business people with capital who specialized in this form of finance) became more common in England and other parts of Europe during the Middle Ages. The Pilgrims even brought over the practice when they landed in what is now Massachusetts.

Factoring in the 1700s

As the American colonies grew, so did the export of raw materials, such as cotton, tobacco, timber, and furs. Factors could give the colonists partial payment upfront for their goods heading overseas. Farmers then had enough money to plant next year’s crops, for instance.

Factoring in the 1800s

During the Industrial Revolution, manufacturers, such as textile mills and apparel factories, needed the revenue upfront to purchase raw materials and pay their laborers. Factors began focusing on the creditworthiness of a company’s customers before agreeing to advance funds to a manufacturer. They wanted to be sure that a factory’s customers would pay for the goods.

Factoring in the 1900s

Manufacturers continued to rely on factoring services, but service industries become a major economic force after World War II. Banks began offering factoring to meet the demand as factoring evolved to serve any kinds of business that invoiced customers who did not pay right away. Payment terms extending 30, 60, or even 90 days became common business practice, requiring companies to seek alternate financing for payroll and other fixed expenses. With high interest rates growing throughout the 1960s, 1970s and 1980s, factoring grew more popular.

Factoring in the 2000s

By the 1990s and the turn of the 21st century, technological advances and the rapid transfer of information and funds opened the doors for independent factoring companies that could specialize in market sectors. With increasing banking restrictions, small businesses and startup companies were often unable to qualify for traditional loans, but they could maintain a steady cash flow through factoring. Today, factoring companies provide not only working capital for fixed expenses and growth, but many also include a variety of added services for clients.

Factoring Today

Interstate Capital, one of the early leaders in the modern factoring industry, opened its doors in 1993 and has helped more than 10,000 companies meet their working capital and expansion needs. With over 100 employees, including dedicated account managers assigned to individual clients, Interstate is able to offer tailored factoring programs and additional services for business owners in a wide variety of industries.

Learn more about factoring and how it can improve your business’s cash flow today!

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