The idea of speeding up a company’s cash flow through factoring is not new. Some variations of factoring go all the way back to the early days of civilization. Here is a short history of how factoring has evolved through the years:
Traders in ancient Mesopotamia (modern-day Iraq, Kuwait and Syria) use a form of factoring in their business dealings.
Modern factoring begins to take shape in England as a form of financing for clothing merchants.
Factoring comes to the New World. American colonists seek advance payments on raw materials like timber, tobacco and cotton shipped across the Atlantic to England.
The Industrial Revolution sweeps across Europe and the United States. Non-recourse factoring for clients that have creditworthy customers becomes more common.
Garment and textile companies in the United States use invoice factoring as a way to continue buying raw materials.
Some U.S. banks start providing factoring services. Factoring booms in textiles and manufacturing, reaching a volume of $2.5 billion in 1948.
1970s and 1980s
Rising interest rates and bank regulations make factoring a more popular form of financing.
Major banks and financial giants like GE Capital and GMAC get into factoring. Smaller factoring companies start up, targeting specific industries.
Technological breakthroughs like Internet access and cloud-based platforms make factoring faster and more accessible to companies of all sizes.