| The only thing more destructive to business | | | | traded grain debt instead of the actually |
| survival than lack of customers is lack of | | | | grain itself. |
| cash flow to produce goods and provide | | | | |
| services in a high demand market. Consistent | | | | By the time English colonists settled in the |
| cash flow is the lifeblood of commerce and | | | | new world, America, this type of financing |
| the catalyst for healthy economies. There are | | | | had become common. Both English settlers in |
| many options available to increase cash flow. | | | | the new world and English merchants were in |
| | | | prime situations to make lots of money. Due |
| Factoring, also known as invoice factoring or | | | | to the time distance in getting their goods, |
| accounts receivables factoring is one of the | | | | by boat, from the colonies back to England |
| oldest alternatives for continuing cash flow. | | | | and vice versa, these merchants could have |
| Factors, third parties to the transaction | | | | gone bankrupt waiting on their money. Cotton, |
| between the seller and the buyer, purchase | | | | timber, fur and tobacco industries all |
| invoices and accounts receivables at a | | | | spurned their own factoring segments. |
| discount. This process allows companies to | | | | Merchant bankers in London advanced funds to |
| easily cover production purchases, payroll | | | | colonists for goods and materials before they |
| and other operational expenses without any | | | | made the journey across the ocean. They would |
| interruption in their business. | | | | ship their goods to the colonists or back to |
| | | | England where one of these factors would pay |
| Elements of factoring can be traced back to | | | | a discounted rate to the seller before the |
| the Mesopotamians, who are credited with | | | | voyage and afterwards take a percentage for |
| being the cradle of civilization and the | | | | selling and collecting the money owed. |
| first to generate business code structures | | | | |
| and government regulations for commerce. | | | | Factoring became a common business practice. |
| Experts have evidence that proves 4,000 years | | | | Until the 1700s, England and the US shared a |
| ago, the Mesopotamians also created the | | | | common law framework. Originally, English law |
| concept of factoring. Following Mesopotamia, | | | | forbade the selling of invoices unless the |
| there is evidence that the Romans sold | | | | debtor was notified in advance. Of course, |
| promissory notes at discounted prices. Roman | | | | the United States developed its own |
| merchants also enlisted the services of | | | | government. In the late 1940s United States |
| collectors to settle trade debts. But | | | | almost wholly adopted non-notification |
| factoring as we know it today got its start | | | | factoring arrangements and witnessed a boom |
| in the Middle Ages. | | | | in factoring in textile industries and |
| | | | transportation industries. |
| Jews, fleeing persecution in Spain in the | | | | |
| 1300s and1400s, fled to Italy. In Italy, Jews | | | | Another type of factoring exploded on the |
| were not allowed to hold land, but were still | | | | seen with the introduction of credit cards. A |
| given the opportunity to engage in the local | | | | credit card is a form of factoring where the |
| commerce in grain crops. Jews, who were not | | | | credit card company advances the retailer and |
| bound by the local Christian laws of usury, | | | | the service provider the cash before the |
| charging a fee to use money, gave high-risk | | | | individual actually pays for the invoice. The |
| loans to farmers against the crops in their | | | | retailer and service provider are charged a |
| fields. Originally, they purchased the grain | | | | small fee, but they are spared the hassles of |
| sale rights against the coming harvest. As in | | | | financing the individual on their own and |
| any venture, where there is profitability, | | | | having to wait for that person to pay for |
| there is expansion. These early merchant | | | | their service or product. |
| bankers began to advance money against the | | | | |
| delivery and payment of grain shipped abroad | | | | Today, the purpose of invoice factoring has |
| and to distant trading ports. Soon, the | | | | not changed. Factoring allows the business |
| profitability of this endeavor opened the | | | | owner to operate his day-to-day business |
| floodgates to a new segment of society and | | | | without the consequences of cash flow |
| created a new industry within the trade | | | | interruption. |
| industry of merchants who solely bought and | | | | |