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 a factor takes possession of goods (or documents of title representing goods, e.g. a bill of lading) 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 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.
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 mercantile company, there could be a hierarchy, including several grades of factor. In the Hudson's Bay Company as it was restructured after merging with the North West Company in 1821, commissioned officers included the ranks of chief trader and chief factor. 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.
The Dutch East India Company and British East India Company based factors all over Asia. In 18th- and early 19th-century China and Japan, trade was limited to small ghettoes: the Dutch Factory on Dejima, an island off Nagasaki, and the Thirteen Factories and Shamian Island areas of Canton.
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 of Java, 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:
- 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 on Dejima, mentioned above.
In Scottish law, 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.