The History of Factoring

The History of Factoring

The History of Factoring

Factoring, at its core, is helping businesses grow, sustain themselves, and continue operating when cash flow has been constricted in some way. It's a form of small business financing that has increasingly become vital to helping businesses who don't qualify for traditional commercial loans. But did you know that the idea of factoring goes back thousands of years?

The Hedaya Capital Group in New York is the best factoring company, offering invoice factoring, or accounts receivable financing. We understand how vital access to working capital is to small businesses. Our services offer a cash flow solution that can work for many industries, including those in the fashion industry, clothing industry, transportation industry, staffing industry, advertisement and print industry, and many more. Below, we'll go over the history of factoring. Contact us for factoring services today!


Evidence has been found of a rudimentary form of factoring 5,000 years ago in ancient Mesopotamia; however, factoring that resembles factoring of today where "factors" were employed to help with the sale and delivery of goods in exchange for a commission was first recorded in ancient Rome. The practice of factoring continued for the next 1,000 years into the Middle Ages, which slowly grew as merchant trading grew.

When America began to be settled, the idea was imported, if you will, beginning with the Pilgrims. Factors increased sales, which was definitely needed in a time where people lived many miles apart. However, it wasn't until the Industrial Revolution hit its stride in the middle of the 18th century that factoring took on a life of its own.


With the demand of textiles exploding across Europe and America, there needed to be a way to supply it. Thus, factors looked like this:

  • Factors would take the goods
  • Factors would hold onto the goods until they found a buyer
  • Factors would deliver the good to the buyer
  • Factors would take payment for the goods
  • Factors would return the payment to the manufacturer sans a commission rate

As the factors prospered, they began extending credit to the merchants without taking possession of the physical goods. The factor would reimburse himself from the sale of the goods. The factor could place a lien on the seller's goods or retain them if the seller refused to pay.

As the economy evolved, so too did factoring. No longer was there a need for the storage, marketing, and distribution of the physical goods because the goods were sold directly to the buyers instead, bypassing the factors. However, the sellers still needed upfront financing in order to produce the goods to sell. This was where factors saw the opportunity and seized it. Thus, now the seller assigned to the factors the collection of receivables from the sales. This is a classic example of businesses evolving as the economic climate changes, which is what any good business does in order to stay in business (Apple is the classic example of evolving from computers to other electronics, such as iPods and iPhones).

Minor tweaks in the rules have been made since this type of factoring became widespread in Europe in the 1950s. One was the invention of recourse and non-recourse factoring in order to protect the factors from vendor invoices who never paid. With the rise in foreign trade transactions in the last few decades, factoring has seen amazing growth and is now considered a great way to improve cash flow and increase working capital for many businesses.



If something didn't work, it would die out. There are countless business models that have died out over the centuries, either because needs changed and the business didn't adapt, or because it just never worked in the first place. Blockbuster died because it failed to adapt to on-demand movies. Businesses that began and never had a chance include homeless tours, breakfast cola, bottled water for pets, and caffeinated alcohol.

That being said, factoring is growing leaps and bounds because it solves a need for small businesses — and it solves this need well. A continuous flow of cash is necessary for any business, but especially small businesses that just don't have the liquidity and access to cash that big business does. Factoring automatically adjusts to your small business' needs since you only receive money off your invoices. Thus, if your invoices grow, so too does your cash and vice versa. If you think about it, every transaction you make using credit is a form of factoring. In essence, when you swipe your card, the seller gets the cash immediately without having to wait for actual payment. In exchange, the credit card company takes a percentage of the transaction and then collects the funds for itself.

Factoring can help almost any industry grow and expand. Call today to learn more!


The Hedaya Capital Group is one of the best factoring companies in New York. We offer factoring services, as well as accounts receivable management plans for small to medium-sized businesses looking to manage their cash flow. All of our small business financing solutions are personalized, offering you exactly what you need when you need it. There is no end to our creativity and our work ethic. In short, we never rest until your working capital needs are met.

At The Hedaya Capital Group, we work hard to maintain personal relationships with our client, understand their needs and goals, and to ensure we are on the same page. If you are in need of factoring services, give us a call today!