The Evolution of Invoice Factoring
Factoring has been around in some form or another for centuries, yet it is still a relatively untapped source of finance for many businesses. In fact, invoice factoring is typically a small part of the curriculum in many university finance departments. Let’s take a look at the history and evolution of the world of factoring.
The principal of factoring began sometime during the Mesopotamian Era around 1772 BC. It is believed that the rules for factoring or financing of trade was laid out in the Babylonian law code called The Code of Hammurabi, one of the oldest deciphered writings of significant length in the world. This alludes that factoring was used as a source of cash flow for businesses in England prior to the 1400’s.
In the early 1300’s and into the 1400’s, factoring was predominantly used by clothing merchants and traders. The “factor” would take possession of the physical good and provide cash advances to the merchant. The “factor” would then extend the financed credit to the buyers and insured the credit strength of the buyer. In the early 1600’s, factoring reached the Americas and colonist took quickly to the idea of factoring as they needed advances on the raw materials they were shipping to across the Atlantic to England. When the Industrial Revolution began, non-recourse factoring became a popular option for clients who were creditworthy. As the United States neared the early 20th century, the garment and textile industry brought factoring full circle as they utilized factoring as an avenue to continue to purchase raw materials.
Factoring continued to take shape throughout the 1900’s as small businesses who were not eligible for bank loans needed funding. In the 1940’s, banks in the United States began offering factoring services as the need for factoring had boomed in the textile and manufacturing industries. During this time, banks and “factors” were now purchasing a company’s invoices or receivables rather than taking possession of the physical goods. This idea transformed the industry into what it is referred to as today, invoice factoring or receivables factoring. The factoring industry continued to gain popularity in all business industries. When the savings & loans crisis began to heat up in the 1980’s, banks were in need of assistance with their customers and turned to factors for assistance. In the early 2000’s the U.S. economy plunged increasing the use of factoring companies as businesses were struggling to stay afloat.
Over many centuries, invoice factoring has been a means of financing for many businesses. As the economy continues to grow and new businesses emerge, the factoring industry will continue to be a source of financial support for centuries to come.
Meet Jack Stieber and Brad Gurney, President and Vice President of American Receivable Corporation
Since 1979, Jack Stieber and Brad Gurney have been pioneers in the factoring industry. I sat down with them to get an in-depth look at where they started and what it takes to become #1.
First question that starts it all, how did you two meet?
Brad: I was interning with Jack’s dad, John Stieber Sr., my economics professor from SMU. He wanted to start a factoring company as he saw a real opportunity for one at the time. He sent me out to meet Jack to try and get him to factor with us as one of our first clients.
Jack: At the time, I owned a computer company, and my father asked me to meet with Brad and sell him one of my invoices. He was really having me vet Brad to see how well he did on the sales side of the business. A couple months later, my dad and his business partner decided to take a step back and that’s when I decided to come onboard and join Brad.
What was the factoring industry like at the time and how did that impact your first year of business?
Jack: To be truthful, I really didn’t know much about factoring when I decided to join Brad. My only knowledge about it was what I had learned from my father. At the time that we started American Receivable, there were roughly six other factoring companies in the DFW area.
Brad: Our first office also doubled as my living room. We had $40,000 and went right to work marketing. Luckily, the living room office didn’t last long and we were able to move into a converted storage closet “office.”
Jack: Our main focus those first couple of months was to get our name out there and promote factoring. Because it was a relatively new industry, people were unaware as to what invoice factoring was, and it became our job to not only educate them but to also sell them on the idea. With a lot of hard work, we were able to sign our first client within the first 2 months bringing in $20k of invoices.
Advertising and marketing was so different in the early 80’s than it is today. With such limited resources, what avenues did you pursue to drive business?
Brad: We spent a great deal of time putting together mailers to send to businesses in the area. I remember being in our tiny office stuffing envelopes and typing addresses until 2 or 3 in the morning. We also used the cold calling tactic as we tried to educate companies on our services.
Jack: I think our greatest success in marketing was when we realized that we needed to partner with banks. We were the first factoring company to partner with bankers in the metroplex. We developed relationships with many different bankers, some of whom have become bank Presidents. Today, relationships with bankers is one of the most important aspects of the factoring industry. With our marketing efforts and the advancements in technology, we now have over 1500 relationships in the DFW area.
Brad: Those relationships allowed us to shift our marketing skills from mass marketing to direct marketing of businesses with factoring potential.
Factoring is now a main source of cash flow for many businesses. When did the industry begin to boom?
Brad: Factoring really started to take flight at the end of the 80’s as the Savings & Loans crisis started to heat up. Essentially, we were in the right place at the right time. Because we had established relationships with bankers, they called us to help them with their customers. All of our efforts came to fruition in the 90’s as business began to explode. We had already expanded American Receivable to Austin and San Antonio in the 80’s, and in the 90’s, we were able to expand nationally.
With this amount of growth, how did business change?
Jack: With all the growth that happened, we were able to get out of our storage closet office and put down a real home base as well as hire our first employee. In 1996, we signed our first account to factor $1 million a month. This was huge for American Receivable as the factoring industry had really taken off and now we had multiple competitors. When the market crashed in the early 2000’s, business once again exploded, this time nationwide. American Receivable was doubling business every 3-4 years, increasing our presence in the finance industry.
What would be your selling point to someone interested in factoring and considering American Receivable?
Brad: American Receivable has been owned and operated by Jack and I for the last 38 years. We have a dedicated staff who is there to help you every step of the way. We offer some of the lowest rates in the nation starting at .08% and up to 90% funding within 48 hours with no start-up fees or hidden costs. We have also been ranked #1 by Top Ten Reviews for 3 consecutive years.
Jack: Our goal is to help small businesses succeed. In today’s time, cash flow is a big obstacle for smaller businesses. If we can play a part in helping someone be successful in a field they are passionate about, then we have done our job. It’s a rewarding feeling knowing American Receivable can be a part of their success.
American Receivable is a Dallas factoring company that provides services for businesses nationwide. American receivable has been in business for 38 years and has been ranked the #1 Factoring Company in America by Top 10 Reviews for three consecutive years.