Like all financing strategies, factoring has evolved over the centuries to keep pace with developments in the commercial world and the legal sphere, as well as the emergence of technology such as air travel, telecommunications and IT.
However, through the ages, factoring has always remained true to its central objective – which is to provide companies with the working capital that they need to operate optimally, take advantage of new business opportunities and meet their expansion goals.
Today, factoring is a financial transaction that involves a business selling its invoices (i.e. accounts receivable) to a third-party organisation, called a “factor”. The factor provides the business with the cash that’s owing to them and collects payment of the invoices directly from the business’s clients. This gives the business an opportunity to access working capital when it is needed, rather than experience cashflow problems while waiting out invoice payment terms of 30, 60, 90 or even 120 days.
The idea of boosting cashflow through factoring is not new. In fact, factoring is a well-established form of lending that dates back as far as the days of the ancient Babylonians.
A brief history of factoring
- Let’s look at how factoring has evolved through the years:
- Origins of factoring:
Historians believe that factoring was first established to finance business and trade in ancient Mesopotamia, with evidence of factoring preserved in the Babylonian Code of Hammurabi, which dates to about 1754 B.C.1
Factoring became a well-established form of business lending in 14th century England, particularly in the clothing trade.
Factoring crossed the Atlantic in around 1620 when the Pilgrims colonised America. Traders in this community needed cash to pay for raw materials like timber and tobacco, which were shipped back to England.
During the Industrial Revolution, factoring became a common form of business finance for companies throughout Europe and the United States.
- 1900 – 1950s:
The popularity of factoring rose rapidly in the United States, especially within the clothing and textile industries. Some banks began introducing factoring services.
- 1960 – 1980s:
The factoring industry was booming due to rising interest rates and the fact that more stringent banking regulations were impacting the availability of loans.
The major players in the financial services industry, including GE Capital and GMAC (General Motors Acceptance Corp) auto loans, launched their own factoring service offerings. Some smaller firms created niche factoring solutions for specific industries.
The digital revolution has given birth to technology that makes factoring management processes more efficient. This translates into faster access to finance for businesses that want to boost their cashflows through factoring.
Our track record
First established in 1988, Merchant Factors has spent the past three decades providing innovative and flexible working capital solutions to a wide range of clients spread across a variety of industries. Almost 30 years on, we are a well-established leader in the local and cross-border factoring and trade finance industry.
Historically, factoring has been a relationship-focused business. While we do leverage modern technology to increase efficiencies and create a better customer experience, Merchant Factors still adheres to the age-hold approach when dealing with clients – building open and personal business relationships through regular, face-to-face meetings. This enables us to gain an in-depth understanding of each client’s business, as well as their current priorities and future plans.
As the only truly independent debtor finance institution in South Africa, Merchant Factors can offer clients the fastest turnaround time in the industry from application to pay-out, in addition to comprehensive debtor administration services.
Each application is assessed according to the quality of the debtors’ book and future prospects of the applicant, instead of the often prohibitive methods used by certain other finance houses. As a result, over the years, our services have contributed to the growth and success of over 2000 businesses to date.
For a business financing strategy that has stood the test of time, contact Merchant Factors today.
Finance beyond the Numbers.