History and Uses of Invoice Factoring //

In the last few years, small business loans have been significantly reduced by banks. According to The Wall Street Journal this decrease is due to low demand, high costs, and stricter lending standards following the 2008 economic crisis. Many entrepreneurs are now turning to other financing options like invoice factoring. Factoring is the process of a factoring company buying a business’ invoices and quickly funding working capital against unpaid accounts receivables. To generate cash, the business leverages its unpaid invoices.

Invoice Factoring is a well-established concept. As long as commerce and trade have existed, the need for businesses to be able raise funds is a constant. Invoice factoring is one of the oldest forms for business financing. Its history dates back to Mesopotamia, 4,000 years ago. Invoice factoring is a long-standing tradition that dates back to medieval businessmen and English colonists, as well as the modern services we have today.

Factoring in Ancient World

A form of factoring was used for the first time in ancient Mesopotamia, which is what is now Iraq, Kuwait and Syria. The Code of Hammurabi outlines the factoring rules of ancient Mesopotamian culture. This Babylonian law code from ancient Mesopotamia is well preserved and dates back to 1754 B.C. Factoring survived even though Mesopotamian civilization was destroyed. Each civilization, including the Romans, used some form of factoring. The Romans are known for their ability to use and improve upon inventions and concepts. They were also the first to sell discount promissory notes at a discounted price and to conscript collectors in order to settle trade debts.

The 1300s and 1400s Invoice Factoring

Invoice factoring was first developed in the 1300s. This type of financing was required for various types of merchants and events that occurred across Europe. In the 1300s and 1400s, Jews fled Spain to escape persecution. They were not allowed to own land in Italy but were allowed to trade in the local grain crops. These merchant bankers provided high-risk loans to farmers for the production of their crops. This service became more popular and merchant bankers started to advance money for the delivery and payment abroad of grain. Factoring was being used in England by clothing merchants as well.

In the 1600s and 1700s, factoring was used

Invoice factoring was a well-known business practice by the time the English colonists made their way across the Atlantic from England to America. Invoice factoring was used by both the East India Company as well as The Hudson Bay Trading Company, when the British Empire wanted to colonize the New World. Because of the time and distance it took for settlers in England to get their materials and then ship their goods (cotton and timber, tobacco and fur, etc. Merchant bankers in London realized that it was essential to advance funds to colonists to purchase the materials they required. Or risk bankruptcy. The factor would offer a discount rate to the seller, regardless of whether the goods were being shipped back to England or to the colonists. After the goods arrived at their destination, a portion was withheld and the money owed was collected.

Modern Factoring in 1900s

Invoice factoring was used by textile and garment companies in the United States at the beginning of the 1900s to help them continue to buy raw materials. Invoice factoring was not introduced to other industries and business types in the United States until after World War II. Some U.S. banks began providing factoring services to companies by the mid-1940s. Invoice factoring became more popular in the 1960s and 1970s due to rising interest rates and regulations from banks. Invoice factoring was a different financing option than traditional options. It didn’t require credit checks and allowed business owners to avoid interest fees. Major banks such as GE Capital and GMAC started to include factoring in their services around the 1990s.

Invoice Factoring Today

In the 2000s, small factoring companies emerged that specialized in specific industries. Technological innovations such as the internet and cloud-based platforms have made it possible to access information quickly. Invoice factoring has become easier to do. Businesses no longer have to wait weeks for a response from traditional banks. They can now get the cash they need in 24 hours.

Larger companies had easier access to invoice factoring in the past. Invoice factoring is now available to startups, small businesses, mid-sized businesses, and large corporations. It provides the cash flow that they need to pay expenses, grow, or expand. Factoring invoices gives the business cash it already has, which allows it to avoid unnecessary debts and risks. This working capital gives the business the freedom to continue its day-to-day operations without worrying about cash flow.

Security Business Capital is a team of dedicated individuals who have years of experience in providing flexible cash flow solutions to help businesses thrive and grow – without high-interest rates or high costs. Security Business Capital’s invoicing services let your business use unpaid receivables to quickly and easily generate the cash you require. The application and set-up process are simple and easy. There are no hidden fees. Transportation, oil and gas services and temp staffing are just some of the many business types that can benefit from our invoice factoring services.

For a consultation or free quote on Security Business Capital’s Invoice Factoring Option, please contact Security Business Capital

Security Business Capital first published the post Invoice Factoring: History and Use

Author: Justin Young

Justin Young HoneyHat™