Factor (trade)

A factor is a type of trader who receives and sells goods on commission (called factorage). A factor is a mercantile fiduciary transacting business in his own name and not disclosing his principal. A factor differs from a commission merchant in that the former takes possession of goods (or documents of title representing goods, e.g. a bill of lading) on consignment, whereas the latter sells goods not in his possession on the basis of samples.

Most modern factor business is in the textile field, but factors are also used to a great extent in the shoe, furniture, hardware, and other industries, and the trade areas in which factors operate have increased. In the United Kingdom, most factors fall within the definition of a mercantile agent under the Factors Act 1889 and therefore have the powers of such. A factor has a possessory lien over the consigned goods that covers any claims against the principal arising out of the factor's activity. A debt factor, whether a person or firm (factoring company), accepts as assignee book debts (accounts receivable) as security for short-term loans; this is known as factoring.

The term derives from the Latin for "doer, maker", from facit, "he/she/it does/makes". Historically, a factor had his seat at a sort of trading post known as a factory.

Before the 20th century, factors were mercantile intermediaries whose main functions were warehousing and selling consigned goods, accounting to principals for the proceeds, guaranteeing buyers' credit, and sometimes making cash advances to principals prior to the actual sale of the goods. Their services were of particular value in foreign trade, and factors became important figures in the great period of colonial exploration and development.

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