Invoice factoring has been around for a pretty long time and it’s history is very interesting! Here are some facts about factoring that people don’t always know about.

Invoice factoring isn’t a new concept.

In fact, factoring can be traced back as far as 4,000 years go to Mesopotamia and then later to Rome, where the Romans sold promissory notes at a discounted price. In the 14th-17th centuries, factoring was used in Europe in clothing, import/export and manufacturing industries. Factoring then made it’s way over to America with the Pilgrims around 1620.

If you think 30-60 days is a long time to wait for payment, think about cotton growers in the US selling their product to England in the 1700s. The product and then the payment would have to makes it’s way overseas by ship. Back then, factors acted basically as middlemen that would take possession of the goods, provide a cash advance to the producer, as well as finance the credit that was extended to the buyer. Factors work a little differently today, but it’s interesting to know the roots of this financing tool!

Factoring is not a loan.

Although it’s a form of financing, factoring isn’t a loan. It’s completely debt-free and won’t affect your business’s credit rating. This is because the factor doesn’t loan you any money. Your business sells its accounts receivable invoices to the factoring company at a discount in exchange for cash. You end up receiving money that you’ve already earned, just much faster than waiting for a customer payment. Since factoring isn’t a loan, there’s no need for any repayment.

Invoice factoring isn’t only for businesses with financial troubles.

While it is true that businesses that are in financial trouble turn to factoring when traditional financing routes aren’t an option, that is absolutely not the only reason to utilize factoring. Other types of businesses use factoring to help build up their cash flow. A few examples are:

• Businesses growing at a faster pace than expected
• Businesses getting ready to go through a transition
• Businesses that simply want a debt-free financing option
• Businesses recovering from a tough year finance-wise
• Businesses that want to have predictable and dependable cash flow, but still have competitive payment terms

To learn more about invoice factoring, check out some more of our blog posts or contact us today!

 

Post written by Senior Copywriter “Nikki Wakefield” of CoreFund Capital, LLC.