History of Factoring

Factoring, also known as invoice factoring and account receivable factoring, has been used by American business since Colonial times.

Its origins go back even further, literally thousands of years to the early days of commerce.

American consumers take part in a common form of factoring every time they use a credit card. In this familiar transaction, the issuing bank or card company is the factor (using the Visa, MasterCard other system) advancing the seller of merchandise or services cash immediately after your purchase, long before you actually pay. Because the seller gets cash up front without having to wait for your payment, his money is not tied up in receivables.

Commercial invoice factoring accomplishes the same for commercial or business-to-business transactions. When you extend credit to a customer, you are essentially becoming that customer’s part-time banker. For the 30 or 60 day period that credit is extended to your customer, you become his lender, and he your borrower. When you factor the invoice, you get cash up front.

Perhaps the most attractive aspect of contemporary factoring is a continuous level of cash flow into a company’s hands, allowing business planning and operation in a timely and efficient manner. The invoice factoring system also means available financing which automatically adjusts to your unique rate of business growth, because increased cash in triggered by new invoices. Factoring is the only finance mechanism directly linked to a company’s sales.

Millions of times a day, every store that offers customers charge privileges using credit cards is the direct beneficiary of factoring. So too is every business that uses factoring to offer extended terms to its customers.

Many of America’s major companies are enthusiastic users of this finance system and depend on factoring more than all other types of business financing combined. Without credit created through factoring, our system of free enterprise would be seriously limited.

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