The financial arrangement known as factoring has been around almost as long as lending in its most basic forms. Thousands of years ago now, traders in ancient Mesopotamia regularly used factoring in order to acquire the cash they needed to buy supplies for the next caravan or run. Factoring companies in california today often turn out to be just as important to their own clients, making it much easier for many to do business and to take advantage of unforeseen opportunities that crop up along the way.
The basics of factoring have changed relatively little over the years. Even in the modern version of the practice, the same fundamental idea holds, with one party, known as the “factor,” taking over the unpaid invoices of the other. In exchange, the original owner of the invoices receives payment up front, allowing for cash to be put to use instead of remaining locked up in the debt owed by a third party.
Even so, today’s factoring arrangements do have their own particular quirks and details, all of which it will generally pay to understand. In the original days of factoring, a factor would retain the ability to sell the invoices back to the company that issued them, should they not be paid. That style of recourse-based factoring is still common today, but it is not the only one that is available.
In many cases, a factor will instead agree that the initial transaction marks the end of the invoice owner’s responsibility. When a non-recourse factoring agreement of this kind is entered into, the original issuer and possessor of the invoices, therefore, becomes absolved of any need to keep up with the party they were sent to from the start.
This distinction regularly turns out to be an important one, but there are other common considerations, as well. Some factors, for example, will work only with clients who commit to delivering a certain amount or more of volume every month, or who agree to have every future invoice issued to a particular customer handled by the factor. While the basic concept of factoring is fairly simple and often useful, there are quite a few ways of specializing this core idea to better suit particular goals and situations.