A History of Factoring

Factoring goes back four thousand years to King Hammurabi ([1795-1750 BC]), the ruler of traditional Mesopotamia. He was the ruler who established the greatness of Babylon, known as the world's first metropolis. Considered as the bed of civilization, Bronze Age Mesopotamia included the Akkadian, Assyrian, Babylonian and Sumer, empires. Writing was first developed by the Mesopotamians, as well as business foundations. It was the Mesopotamians who invented factoring. In reality, one of the first written law codes on record was a set of laws called Hammurabi's Code. The organization of society was controlled by this code.

The earliest known example of a ruler or king implementing orderly laws with the target of getting all men to adhere to them was the Hammurabi Code. This code was created for the public to see, and it was etched on a tall, black stone monument 8 feet tall that began and ended with a message to the gods. Back then, laws were considered as requests, and curses await anyone who annihilated and disobeyed it.

Some of these original laws were intended for their day and included stuff like "if a man builds a home badly, and it collapses and kills the owner, the builder is to be killed. If the owner's son died, then the builder's son is slain, too." And that might be the foundation for the saying "an eye for an eye." Those who bear fake witness are also killed. Any accused individuals were, however, allowed to cast themselves into the Euphrates River, and if the current bore him to the shore alive he was announced innocent, if he drowned he was judged guilty. Few knew ways to swim in those days.

Although the Mesopotamian civilization has long since been extinct, factoring has figured in the commerce of nearly every civilization that followed, the Romans included. They were the first to sell discounted promissory notes.

Factoring was first documented in the American colonies some time before the revolution, at a point when raw materials and products were shipped from the colonies to the Americas. The merchant bankers in Europe, which were quite dissimilar to how they are today, gave the American colonists advanced funding for these materials, enabling the colonists to continue to harvest their new land. They were not under any duty to wait to be paid. It was these factors of colonial times that made advances against the accounts receivable of clients.

During the Economic Revolution, factoring became more concentrated on the issue of credit, as factors assured payment for licensed customers.

Before expanding to varied business types after the war, factoring essentially catered to the textile and garment industries in the United States before 1930.

Personal factors became reasonably popular when rates rose in the 1960's and 70's, intensifying in the 80's due to the accelerating impact of rates and changes in the banking industry.Small businesses were compelled to find alternative sources of financing for expansion and improvement so factoring became and still is a popular option.

It is projected that in the year 2009, businesses will begin using accounts receivable factoring for growth, profit, and in some cases, for survival.