If you’re curious where factoring came from, the history of invoice factoring runs from medieval merchant agents to today’s services. Agents who sold goods slowly became buyers of invoices, with the modern form beginning in the mid-19th century.
This history sits inside the wider topic of invoice factoring, which the main guide covers in full.
| Milestone | Date |
|---|---|
| Earliest evidence of factoring (France and England) | 15th century |
| Factoring in its modern form begins in the US | Mid-19th century |
| Two-factor international factoring emerges | By the 1960s |
| International Factors Ltd founded in England | 1961 |
| Dailly Act sets a legal basis for factoring in France | 1981 |
| UNIDROIT Convention on International Factoring (Ottawa Convention) | 1988 |
These dates come from BNP Paribas’s historical site and a Kluwer Arbitration Blog post. Sources differ and figures can change, so check the source before you rely on them.
Merchant agents and the medieval roots of factoring
The word factor comes from the Latin facere, meaning “to do”, according to BNP Paribas’s history site (page last updated March 2026). A factor was a person who acts on someone else’s behalf. Early factors were sales agents, not lenders.
An April 1937 issue of the Business History Review carried a short piece by Ralph M. Hower titled “James Talcott and Factoring” (Cambridge Core listing). It says the origins of the business are lost in the Middle Ages and that factors then served manufacturers and traders by selling goods on consignment for a commission.
The Secured Finance Network’s factoring glossary (last updated June 2019) describes the ancestors of modern factors as agents who:
- took possession of goods that still belonged to a manufacturer and delivered them to overseas buyers;
- usually found the buyers and handled the marketing too;
- remitted the money, less commission, to the manufacturer once the goods were paid for.
BNP Paribas’s history site says the first evidence of factoring is in the fifteenth century, in France and in England. It names the wealthy French merchant and banker Jacques Cœur, who traded around the Mediterranean and relied on an extensive network of factors. Initially, their mission was to sell goods on behalf of producers, as the same page explains.
The glossary also links the 14th and 15th centuries to a huge expansion in trade around the Mediterranean and between Europe and Asia, and says a rudimentary form of factoring helped that trade grow (SFNet glossary, June 2019). It further says some form of factoring can be traced to ancient law codes, including that of Hammurabi, the King of Babylon. Treat that claim as a loose family tree rather than a documented line of descent.
The history of factoring in British mills and American textiles
The glossary describes how, in the 18th century, factors for the booming British textile industry found out which overseas buyers could be relied upon to pay. They paid the manufacturer some of the value of the goods upfront, and that payment was in effect a guarantee the client would be paid, minus the factor’s commission (SFNet, June 2019). A mill owner who needed money for raw materials did not have to travel overseas to chase buyers.
On the other side of the Atlantic, BNP Paribas’s history site says the technique truly developed in the United States from the 17th to the 19th centuries, thereby facilitating transatlantic trade with England (BNP Paribas, page updated March 2026). At the end of the 19th century, the factor became “factoring”. The financial side took hold: buying a company’s debts to give it cash to keep trading.
The glossary places the next step in the late 19th century, when the American textile boom made trade more domestic and manufacturers had their own sales teams. Factors took over collections and provided credit while waiting for the customer to pay. In its words, the factor became an outsourced finance department (SFNet).
Sources date the modern form slightly differently. A Kluwer Arbitration Blog post of April 2017 says factoring in its current-day form began in the US in the mid-19th century (Kluwer, April 10, 2017). The BNP Paribas page, by contrast, stresses the end of the 19th century.
The 1960s turning point in Europe
BNP Paribas’s history site says that although factoring grew in the US, it often remained limited to financing the textile industry. In the 20th century, American factors saw the need to expand into Europe, and the creation of the European Community of Coal and Steel in 1951 contributed to an expansion of trade. The same page says that from the 1960s factoring players gradually took hold there (BNP Paribas).
The page names these early European players as neutral examples:
- International Factors Ltd, founded in England in 1961 at the initiative of the First National Bank of Boston;
- International Factors AG, a holding company set up in Switzerland in 1963;
- Ifitalia, the first Italian factoring company, created in 1963 by Banca Nazionale del Lavoro;
- Société Française de Factoring (1964) and Factofrance Heller (1966) in France;
- KEFAM in Belgium, founded in 1965.
Even so, the page says the technique was still associated with firms in difficulty. This negative connotation inhibited growth in France and Italy, where businesses stayed attached to conventional short-term funding from commercial banks. Reputation, not only law, shaped how factoring spread.
Banks, language and law in France
The same history says the change came in the 1970s, when the major French banks became more interested and saw factoring as a product for businesses. Besides buying credit, the factoring company manages the customer’s accounts and recovers debts. To reach this market, banks created subsidiaries or specialised departments.
The French word “affacturage” was created by a decree of 29 November 1973. A regulatory framework followed, with the Dailly Act of 1981 laying down a legal basis for factoring operations and the Banking Act of 24 January 1984. The page says the technique then officially became a banking activity (BNP Paribas).
It also says the financial crisis of 2008 contributed to the expansion of factoring in France. This is one country’s story, and rules, providers and market structure differ elsewhere.
Cross-border factoring and the Ottawa Convention
The Kluwer post of April 2017 says that by the 1960s factoring had evolved, led by the European market, into “two factor international factoring”. Each side of a trade has its own factor: an Export Factor in the seller’s country and an Import Factor in the buyer’s. Each knows its local requirements for assigning and collecting receivables.
The post summarises how the process works:
- The seller signs a factoring contract with the Export Factor.
- The Export Factor selects an Import Factor, usually in the buyer’s country, and assigns the receivables to it under an interfactor agreement.
- The Export Factor may advance a proportion of the receivable’s value to the seller, usually up to 80% according to the post.
- The Import Factor collects the receivable and forwards the funds, less a commission.
- The Import Factor guarantees the debt, so the seller is paid even if the buyer fails to pay.
Advance levels vary by provider and country; the explainer on the invoice factoring advance rate covers the term in more detail.
The post says this approach was reflected in the 1988 UNIDROIT Convention on International Factoring, known as the Ottawa Convention, an influential soft law mechanism that helped harmonise practices and regulations. As of that April 2017 post, Factors Chain International was described as arguably the leading institution overseeing factoring, and its General Rules on International Factoring were used by many leading financial institutions.
From agents to finance: how the meaning shifted
The 1937 Business History Review piece noted that factors had turned increasingly from selling goods on consignment to financing sales through advances on merchandise and the purchase of receivables. It said they had taken over a substantial share of business that commercial bankers used to handle for small manufacturers (Cambridge Core). It also said factoring had enjoyed a remarkable increase in extent and importance during the past decade.
The SFNet glossary of June 2019 notes that although funding is thought of as central to factoring, it wasn’t always part of the package. Some large factors serve clients with credit, collection and bookkeeping services and no funding (SFNet). It also describes variants:
- Traditional factoring, which it says emerged in the garment and home furnishings industries and focuses on credit risk, with no recourse to the client if the account debtor doesn’t pay;
- advance factoring, which it says usually involves full recourse;
- maturity factoring, where the factor buys the invoice but pays only once it has collected from the account debtor.
Terms, costs and recourse rules vary by provider and country, so no single historical description fits every arrangement today. How factoring differs from a related product is covered in the explainer on invoice factoring vs invoice discounting.
Frequently asked questions
When did factoring begin?
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Sources give different starting points. A 1937 Business History Review piece places its origins in the Middle Ages, BNP Paribas’s history site gives the fifteenth century for the first evidence, and the SFNet glossary of June 2019 traces some form of it to ancient law codes.
Where did modern factoring develop?
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The Kluwer Arbitration Blog (April 2017) says factoring in its modern form began in the US in the mid-19th century. The SFNet glossary links its modern meaning to the late 19th-century American textile boom.
Where does the word “factor” come from?
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BNP Paribas’s history site says it comes from the Latin facere, “to do”. A factor was someone who acts on another’s behalf.
Did factoring always include funding?
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No. The SFNet glossary (last updated June 2019) says funding wasn’t always part of the package. Some large factors offer credit, collection and bookkeeping services without it.
Do factoring rules work the same in every country?
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No. France, for example, set a legal basis with the Dailly Act of 1981 and the Banking Act of 24 January 1984, according to BNP Paribas’s history site. The 1988 Ottawa Convention aims to harmonise practices, but terms vary by provider and country.
This page is for general information and education only and is not financial, investment, tax or legal advice.
