Factoring is considered to be one of the best tools for small business to raise quick capital. The practice is known as accounts receivables financing and receivable funding throughout the world. Factoring is when one company sells its commercial invoices at a discount to investors. The investor or factor takes on the duty of collecting payment and the risk of a customer being unable to pay the bill. Some of the largest companies have used this in the past and may are still utilizing it now. However, it is a tool mostly used by start-ups, small and medium size businesses today.
Here are a few facts you may find interesting about factoring:
Factoring has been around since the 14th century and was an integral part of doing business. It is said to be an early form of banking and has since evolved into its own.
In the early 19th century factoring was mainly used by cotton mills. It took months to store, ship, and process the cotton exported to other countries. To cover operating cost while they waited payment, mills would factor their IOU’s to investors which would set up shop right at the shipping docks, hints the phrase “cotton-factoring.”
Walter Heller is considered to be authoritative expert when it comes to factoring. He has pioneered many on the method used by today’s factoring companies. His company Walter E Heller & Co is one of the largest factoring companies in the world. It was one of the first companies to use the method in the mid-west and the south.
Receivablesexchange.com was the first on-line marketplace for business owner to auction there invoices themselves. Prior to the on-line auction, business owner had to sell at the discount rate set by the factoring companies. Now over 100,000 members auction invoices on a daily basis.