A Brief History of Factoring (Accounts Receivable Financing)

The idea of ​​accelerating company cash flow through factoring is not new. Several changes in factorization go back to the early days of civilization. The following is a short history of the development of factoring business over the years.

Merchants of ancient Mesopotamia (modern Iraq, Kuwait, Syria) adopted a factor form for commerce

Factoring came to a new world. US settlers are trying to prepay premium timber, tobacco, cotton and other raw materials shipped from the Atlantic to the UK.

The industrial revolution spread to Europe and the United States. Non-recourse factoring of customers with trusted customers has become more common

US clothing and textile companies are using invoice factoring as a way to keep purchasing raw materials

Some US banks are beginning to provide factoring services. Prosperity of textile and manufacturing factoring, reaching $ 2.5 billion in 1948

Major banks such as GE Capital and GMAC and major financial companies are involved in factoring. Small-scale factoring company established for specific industry

With technological advances such as Internet access and cloud-based platforms, companies of all sizes can achieve rapid factoring.

Factoring is a term that is often used erroneously as synonym for accounts receivable loans. In Europe, the term "factory" is a term of general debt finance, but in the United States this term refers to a special form of finance, including actually transferring ownership of the receivables to lenders . It is accurately known as factoring in America. Factoring is a financial transaction in which the company sells receivables (ie invoices) at discounted prices. There are three main methods where factoring differs from bank loans. First, the focus is on the value of accounts receivable, not the company's reputation. Second, factoring is a loan, not a purchase (asset) of assets. Third, two are involved in bank loans and three are involved in factoring.

Factoring is a type of financial transaction and debt financing where a company sells its accounts receivable (ie invoice) to a third party (called an element) at a discounted price. Companies sometimes count their debts to their current and immediate cash needs. Forgery is a factoring contract used by international exporters of Finnish exporters who wants to sell accounts receivable to Ford Fitt. Factoring is often called accounts receivable factoring, invoice factoring, sometimes accounts receivable finance. Accounts receivable loans are terms used more precisely to account for asset-based accounts receivable loans. The Business Finance Association is a major industry association for asset-based lending and factoring.

Describing factoring of accounts receivable, the simplest statement is to sell accounts receivable at a discounted price lower than the factoring company. Also referred to as accounts receivable loans or accounts receivable. Factoring firms that fund the company will only charge a small transaction fee, but will handle the receipt of the sold receivables. The fee charged is entirely dependent on the factoring company selected by the company. The shorter the time required to pay the invoice, the smaller the factoring fee will be. Therefore, companies that pay customers bills on time will only pay 1% of the fee.