A factor, Latin for "doer, maker" (from Latin facit, "he/she/it does/makes"), 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.
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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, 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.
History
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.
Mercantile factors
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 Northwest 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 and British East Indies companies 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 Guangzhou (then romanized as "Canton").
Colonial factors
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:
Judicial factor
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.