The History of Factoring

Invoice factoring dates back about 4,000 years to the cradle of civilization, Bronze Age Mesopotamia, which included the Akkadian, Assyrian, Babylonian and the Sumer empires. At that time, it was King Hammurabi ([1795-1750 BC]) who ruled ancient Mesopotamia. He was the ruler who established the greatness of Babylon, known as the world's first metropolis.

The Mesopotamians are noted as the first people to develop writing, as well as putting the structure into business with code and government regulation. Factoring was also invented by the Mesopotamians.

It all started with a set of laws known as Hammurabi's Code, one of the first written codes of law ever recorded in history, and meant to regulate the society's organizational structure. This code was the earliest example of a ruler proclaiming a body of laws that were arranged with the goal that all men could read them and know what was required to uphold the laws.

The Code was carved upon a black stone monument that begins and ends with addresses to the gods. It was eight feet tall and intended to be in public view.

The code stone was found in the year 1901 in a city in the Persian mountains. Laws were deemed a subject for prayer, and prayers in that era, were actually cursings of those who did not obey the laws.

Original laws were harsh and focused on death, included topics including - if a man builds a house badly, and it falls and kills the owner, then the builder is to be slain. On the other hand, if the owner's son were killed, then the builder's son would be slain. These laws might have been the basis for the saying "an eye for an eye" which we still use today.

If a witness were to testify falsely, then he too was slain. Any accused individuals were allowed to cast themselves into the Euphrates river ... then if the current bore him to the shore alive he was declared innocent, but if he drowned he was pronounced guilty.

Mesopotamians became an extinct civilization, but factoring remained in society through the centuries, and almost every civilization that has been involved in commerce has practiced factoring. One example, the Romans, were the first to sell discounted promissory notes.

First documented in the American colonies some time before the revolution, factoring was used at a time when raw materials and goods like cotton were shipped from the European colonies to the Americas. There were no banks back then, as we know them today, so merchant bankers in Europe advanced funds to the American colonists for these materials. This enabling the colonists to continue to harvest their new land without any obligation to wait to be paid. The factor of colonial times made advances against the accounts receivable of clients.

The Industrial Revolution was an era when factoring became more focused on the issue of credit, as factors guaranteed payment for approved customers. In the United States around the 1930's, factoring occurred primarily for the textile and garment industries. But after the war years, factoring expanded to other businesses.

Private factors became popular in the 1960's and 70's when interest rates rose, and this intensified in the 80's due to the increasing the banking. Small businesses were forced to find other sources of financing for expansion and growth so factoring became and still is a popular option.

During the year 2009, businesses will begin using accounts receivable factoring for profits and growth, and in many cases for survival, so they can stay in business.