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Funding Fundamentals  : Invoice Financing History

Accounts Receivable FACTORING History

Helping Businesses for over 4,000 years.

Accounts Receivable Factoring, sometimes referred to as either Invoice Financing or Funding is one of the longest-standing and proven methods of providing working capital to help businesses solve their working capital and cash flow needs. Founded by the ancient Mesopotamians, factoring has evolved into a key form of financing that companies use to maintain "business as usual" relationships with their customers.

American Accounts Receivable Financing began with the pilgrims who turned to 3rd parties, known as factors to help finance their journey to the New World. Colonists worked with factors to finance the cotton, fur, tobacco and timber industries. Like today, factors in colonial times made cash advances based on the strength of customers' accounts receivables.

During the Industrial Revolution, factors began providing credit services by assessing whether or not to extend cash advances to clients based on the credit-worthiness of the customers.

In the early 20th century, invoice factoring became more established and developed into a major source of financing for the garment, furniture, and transportation industries. These industries, in addition to Fortune 500 companies, were the main beneficiaries of factoring until the 1950s. At that time small to mid-sized business began to use factors so that they too could benefit from having immediate cash available to manage business operations more efficiently.

Today, thousands of American businesses of all sizes and industries turn to the $104 billion Accounts Receivable Financing/factoring industry. In fact, with the challenging credit market environment today, factoring has become the financing method of choice for many businesses, large and small.

By working with Promotional Capital, your company will be engaging in the long and rich tradition of Accounts Receivable Factoring—a time-proven financing method that helps businesses meet their financial and operational needs and goals.

Why Does Factoring Seem So Familiar? Credit Cards.

If you use credit cards you are already familiar with the process of Accounts Receivable Financing or factoring. In fact, every time you swipe your card a new factoring transaction begins.

Here's how. Let's say you and a friend eat dinner at a restaurant, and you pay with your credit card.

  • The credit card company is the factor; the restaurant is the factor's client; and you are the client's customer.
  • Credit card companies approve transactions based on the credit worthiness of the user, just like Promotional Capital factors customers who have a good credit history.
  • As soon as the transaction is made, the credit card company takes on the responsibility of getting paid back by the owner. This is similar to a non-recourse factoring agreement in which upon purchasing an account receivable from a client, assumes the full risk of non-payment by the customer. Here, only a disputed invoice will invalidate the credit card transaction.
  • For a small advance fee (which is deducted from the payment), the credit card company pays the restaurant for dinner without delay. Similarly, Promotional Capital immediately advances cash to clients and eliminates the gap between when a product/service is delivered and when a customer pays.

Credit cards are just one of many examples of Accounts Receivable Financing or factoring. Every year thousands of businesses of all types and sizes turn to factors to help fund their company's growth.

Are you ready to help solve your funding challenges?

Apply for financing services today!

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