Invoice Factoring's Definition and History

Invoice factoring by definition is the sale of a company's receivables, otherwise known as its assets, or invoices, at a discounted rate to a factoring company who pays the business a discounted amount off of the face value amount of these invoices, and then receives payment for the invoices from the company's customers directly.

The practice referred to as factoring has been evolving over 4,000 years, or since the start of commerce. The idea was first utilized during the reign of King Hammurabi of Mesopotamia in a place deemed as the "cradle of civilization." Historically it was the Mesopotamians who developed writing and they also structured business codes and government.

But the notion of selling promissory notes at a discounted price - another form of factoring - started with the Romans. Then, prior to the revolution, the very first instance of factoring happened in America - when animal furs, cotton, and timber where shipped from the colonies to Europe. So the Americans can continue to harvest in London, merchants advanced funds to the colonists. As such, the Americans were able to continue their work because advances were made against the accounts receivables of their clients. Soon, it was during the Industrial Revolution when factoring became more focused on credit when they assisted clients in evaluationg the creditworthiness of their customers and setting credit limits. Only the factor that could ensure payments for customers are approved - and this speeds up the whole transaction.

Invoice factoring services can be an advantageous resource tool for business owners throughout the world, specifically during a difficult economy. Why? Because obtaining a loan from traditional financial institutions like banks can be a difficult and slow process. Invoice factoring services, however, provide short-term working capital to growing businesses who often find it difficult to obtain financial help from traditional forms of funding.

Most organizations do not get paid right away after delivering a product/service - and this negatively affects their cash flow and their ability to produce new orders. After all, supplies need to be on hand to continue making the products. For this reason, businesses who don't get paid for 30, 60 or 90 days can definitely benefit from invoice factoring services. How? Factoring companies can advance to a maximum of 90% of the total invoice and this funding can be given in as little as 1 day.

Don't forget to differentiate factoring from a loan; it is after all, the purchase of a company's assets. Factoring is different from traditional bank loans because bank loans typically involve two parties, while factoring involves three parties. In loans, banks base their decision on the creditworthiness of the company. On the other hand, factoring companies look at the value of the client's receivables to come up with a decision. There are no minimums, no maximums, no long-term commitments and no lengthy application processes when using an invoice factoring company.

So what are your waiting for? Avail of the newest form of invoice factoring, spot factoring today and make it part of your business growth strategy.