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Afactor is a type of trader who receives and sellsgoods oncommission, called factorage. A factor is a mercantilefiduciary transacting business that operates in their own name and does not disclose theirprincipal. A factor differs from a commissionmerchant in that a factor takespossession of goods (or documents of title representing goods, such as abill of lading) onconsignment, but a commission merchant sells goods not in their possession on the basis of samples.[1]
Most modern factor business is in thetextile field, but factors are also used to a great extent in the shoe, furniture, hardware, and other industries. The number of trade areas in which factors operate has increased.[when?] In the United Kingdom, most factors fall within the definition of amercantile agent under theFactors Act 1889 (52 & 53 Vict. c. 45),[a] and therefore have the powers of such.[3] A factor has a possessorylien over the consigned goods that covers any claims against the principal arising out of the factor's activity.[4]
The term derives from the Latin for "doer, maker", fromfacit, "he/she/it does/makes". Historically, a factor had their seat at a sort oftrading post known as afactory.
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 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.[5]
A relatively large mercantile company could have a hierarchy including several grades of factor. TheBritish East India Company hierarchy ranked "factors" between "writers" (junior clerks) and "junior merchants".[6]
In North America theHudson's Bay Company, as restructured after merging with theNorth West Company in 1821, had commissioned officers who included the ranks of chief trader and chief factor. They all shared the profits of the company during itsmonopoly years.[7] In the deed poll under which the HBC was governed, there were 25 chief factors and 28 chief traders. Chief factors usually held high administrative positions.
TheDutch East India Company and the British East India Company based factors at trading posts in numerous sites all over Asia. In 18th- and early 19th-century China and Japan, however, the governments limited European traders to small, defined areas: the Dutch Factory was allowed to operate onDejima, an island off Nagasaki, before the opening of trade with Japan; and in China the British were limited toThirteen Factories andShamian Island areas ofCanton.
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In territories without any other regular authorities, especially if in need of defence, the company could mandate its factor to perform the functions of a governor, theoretically under authority of a higher echelon, including command of a small garrison. For example,Banten, on the Indonesian island ofJava, was from 1603 to 1682 a trading post established by the 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:
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 asfactoring.
InScottish law, a judicial factor is a kind oftrustee appointed by theCourt of Session to administer an estate, for award (called a pupil) until aguardian (called a tutor) can be appointed (factor loco tutoris), for a person who isincapax, or for a partnership that is unable to function.
The several denominations of the Company's servants in India were, writers, factors, junior merchants, and senior merchants: the business of the writers [...] was that of clerking [...]. In the capacity of writers they remained during five years. The first promotion was to the rank of factor; the next to that of junior merchant; in each of which the period of service was three years.
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