Factoring in the United States actually started as a way to facilitate trade between the New World (the US) and the Old World (Europe). The factor was hired by the seller of the goods in the Old World to protect them and collect payment for them once they arrived in the New World. For this, these old-timey factors (then known as commissioned merchants) received a hefty commission.
The risk back then for factors was huge, as goods had to be delivered across the ocean by ship. The factors risked their own lives to accompany the goods across the sea in creaky, musty ships and sometimes the goods spoiled, sometimes they were stolen by pirates or sometimes the ships didn’t even survive the voyage.
When the goods were delivered in the New World, only then could the factor collect payment and ultimately make a profit. However, the buyer still had to pay for the goods and considering how much the goods could change from the time they left the Old World to the time they arrived in the New World, that purchase was not always guaranteed. That’s why many old-timey factors used strong arm tactics to either force the buyer to purchase the goods regardless of the condition they were in or to collect payment from the seller who had hired them using any means possible.
With the risks factoring used to carry, it took a tough and often crusty person to carry it out.
Fortunately, modern factoring isn’t nearly as risky as it used to be back in those days. It still does carry a lot of risk for the factor, though.
[Photo courtesy of Kevin Cole on Flickr]