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Factoring dates back 4,000 years to King Hammurabi ([1795-1750 BC]), the king of ancient Mesopotamia. He was the ruler who established the greatness of Babylon, known as the world's first metropolis. Considered as the cradle of civilization, Bronze Age Mesopotamia included the Akkadian, Assyrian, Babylonian and Sumer, empires. Mesopotamians are credited with first developing writing, as well as putting the structure into business with code and government regulation. It was the Mesopotamians who came up with factoring. In fact, a set of laws known as Hammurabi's Code was one of the first written codes of law ever recorded in history. The code regulates the organization of society.

The Hammurabi Code was the earliest example of a ruler publicly proclaiming a body of laws that were arranged in orderly groups, with the goal that all men could read them and know what was required, by law. Carved upon a black stone monument that begins and ends with addresses to the gods, it stood eight feet tall; the Code was intended to be in public view. Found in the year 1901 in a city of the Persian mountains, law code in those days was deemed a subject for prayer, and prayers in that era, were cursings of those who destroyed the law.

Some of these original laws were meant for their day and included things like if a man builds a house badly, and it falls and kills the owner, the builder is to be slain. If the owner's son was killed, then the builder's son is slain, which may be the basis for the saying "an eye for an eye." Or, if a witness testifies falsely, then he is to be slain. Any accused individuals were, however, allowed to cast themselves into the Euphrates river, and if the current bore him to the shore alive he was declared innocent, if he drowned he was deemed guilty. Few knew how to swim in those days.

Although the Mesopotamians became an extinct civilization, factoring remained and most every civilization with commerce has practiced some form of factoring, including the Romans. They were the first to sell discounted promissory notes.

Factoring was first documented in the American colonies some time before the revolution, at a time when raw materials and goods were shipped from the colonies to the Americas. The merchant bankers (there were not banks back then as there are today) in Europe advanced funds to the American colonists for these materials, enabling the colonists to continue to harvest their new land. They were not under any obligation to wait to be paid. It was these factors of colonial times that made advances against the accounts receivable of clients.

During the Industrial Revolution, invoice factoring became more focused on the issue of credit, as factors guaranteed payment for approved customers.

Before 1930 in the United States, factoring occurred primarily for the textile and garment industries, and then after the war years, factoring expanded to other types of business.

Private factors became quite popular when interest rates rose during the 1960's and 70's, intensifying in the 80's due to the increasing impact of interest rates and changes in the banking industry. Small businesses were forced to find other sources of financing for expansion and growth so factoring became and still is a popular option.

It is projected that during the year 2009, businesses will begin using accounts receivable factoring for growth, profit, and in some cases, for survival.
 

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