A factor, Latin for "doer, maker" (from Latin facit, "to do, make"), is a mercantile fiduciary who receives and sells goods on commission (called factorage), transacting business in his own name and not disclosing his principal, and historically with his seat at a factory (trading post). A factor differs from a commission merchant in that a factor takes possession of goods (or documents of title representing goods) on consignment, whereas a commission merchant 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 UK, 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, be it a person or firm (factoring company), accepts as assignee book debts (accounts receivable) as security for short-term loans; this is known as factoring.
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.
In a relatively large company, there could be a hierarchy, including several grades of factor, such as
- Chief factor, e.g. Alexander Grant Dallas (1816-07-25 – 1882-01-03) was both Chief Factor of the west-of-the-Rockies portion of the Hudson's Bay Company and the Governor of Rupert's Land.
The Dutch and British East Indies companies based factors all over Asia. In China and Japan, until each country was opened, trade was limited to two small islands, Dejima In Nagasaki and Shamian Island in Canton (now Guangzhou). In Nagasaki the trading post was referred to as the Dutch Factory and in Canton as the Canton Factories or Thirteen Factories
In territories without any other 'regular' authorities, especially if in need of defense, the company could mandate its factor to perform the functions of a governor, of course theoretically under authority of a higher echelon, including command of a small garrison, notably Bantam, on the Indonesian island of Java, which was from 1603 to 1682 an English station established by East India Company and run by a series of chief factors.
The term and its compounds are also used to render equivalent positions in other languages, such as:
- Chief factor for the Dutch oppercommies, for instance of the Dutch West India Company on the Slave Coast of West Africa.
- Chief factor for the Dutch opperhoofd (literally 'supreme head'; but also used for a Tribal Chief, as a Sachem of American Indians), e.g. in the Dutch factory (trading post) on Deshima (Dejima, or Latinized Decima) Island.
In Scotland, a judicial factor is a kind of trustee appointed by the Court of Session to administer an estate, for a ward (called a pupil) until a guardian (called a tutor) can be appointed (factor loco tutoris), for a person who is incapax, or for a partnership that is unable to function.
- Christine Rossini, English as a Legal Language, 2nd edn. (London: Kluwer Law International, 1998), 103.
- W.J. Stewart & Robert Burgess, Collins Dictionary of Law, 2nd edn., s.v. "factor" (Collins, 2001), 163.
- Elizabeth A. Martin, ed., Oxford Dictionary of Law, 5th edn., s.v. "factor" (Oxford: Oxford UP, 2003), 196.
- Encyclopædia Britannica. "Factoring", Encyclopædia Britannica Ultimate Reference Suite. Chicago: Encyclopædia Britannica, 2012.
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