From Medieval Fairs to the Card Terminal: A Short History of Selling Future Receivables

A merchant cash advance can look like a product of the smartphone era: an online application, a few months of bank statements, funds sent electronically. But the idea underneath it, giving a business money today in exchange for a share of what it will collect tomorrow, is one of the oldest ideas in commerce. Merchants have been buying, selling and trading future payments for most of a thousand years.

Here is a short tour of how we got from medieval trade fairs to the card terminal on the counter.

The Champagne fairs: Europe's first clearing house

In the 12th and 13th centuries, a cycle of trade fairs in the County of Champagne, in northeastern France, became one of the great marketplaces of medieval Europe. Each fair ran for about two to three weeks, and together they linked the cloth-making cities of the Low Countries with the trading and dyeing centers of Italy. Textiles, leather, fur and spices changed hands there, according to the history of the Champagne fairs.

Money changed hands in more inventive ways too. Italian money-changers set up tables at the fairs, settled payments for goods, arranged future payments and settled bills of exchange, which were often written to come due at one of the fairs. Over time the fairs worked as an international clearing house for paper IOUs. They ran on a body of merchant law, private judges and the value of a merchant's good name. People even had a saying: not to know your Champagne fairs meant not knowing what everyone else knew.

The lesson for today is simple. Once merchants could put a future payment on paper, that paper could be bought, sold and settled. A promise of money later had value now.

The Medici and the business of bills

By the 15th century, the Medici Bank of Florence, which operated from 1397 to 1494, had become the largest and most respected bank in Europe. Much of its business ran on bills of exchange. A bill issued at one branch instructed another branch, often in another city and currency, to pay a set sum after a customary period. Between Florence and London, that period was three months.

Bills of exchange could be sold and traded freely, and the Medici put a great deal of capital to work in commerce through them. The bank also helped refine the double-entry bookkeeping that businesses still use to track money coming in and going out. Every time a funder reads a business's deposits line by line, it is working in a tradition the Medici helped shape.

Factoring: from English wool to the Pilgrims

Alongside bills of exchange grew another practice: factoring, the purchase of a business's accounts receivable. According to the history of factoring, it was already a fact of business life in England before 1400, and it came to America with the Pilgrims around 1620.

The logic was the same one that drives revenue-based funding today. A merchant who had shipped goods but would not be paid for months could sell those future payments to a factor, get working capital right away and keep the business moving.

Factoring kept evolving for centuries. By the 20th century it was still the main way the fast-growing American textile industry funded its working capital. It suited businesses with strong sales and long payment cycles, the same kind of business that values speed and flexibility today.

The card terminal changes the picture

For most of history, the future payments being sold were invoices: a customer owed a business money for goods already delivered. Then card payments transformed how small businesses get paid. A restaurant or a shop might not send invoices at all, but it collects card sales every single day.

The merchant cash advance grew out of that shift. It was originally structured as a lump sum paid to a business in exchange for an agreed percentage of its future credit and debit card sales. Instead of buying a stack of invoices, the funder bought a share of the steady stream of card receipts.

Over time the product broadened. Today a merchant cash advance can cover a business's receivables more generally, with remittances usually made by debit from the business bank account on the schedule in the agreement. The core idea has not changed: a purchase price now, for a portion of receivables later.

The law still recognizes the sale of receivables

The idea is old enough that it is written into modern commercial law. Article 9 of the Uniform Commercial Code, the body of commercial law adopted across the United States, expressly covers a sale of accounts, along with chattel paper, payment intangibles and promissory notes. You can read the scope section, UCC 9-109, on Cornell Law School's Legal Information Institute.

That is part of why merchant cash advance agreements talk about purchase prices, purchased amounts and specified percentages. They describe a purchase of future receivables, a structure with roots that stretch back to the money-changers' tables in Champagne.

What history teaches business owners today

A few threads run from the medieval fairs to today's funding market:

• Trust and reputation matter. The fairs ran on a merchant's good name. Clear terms, honest files and responsive communication still decide who people want to work with.
• Paperwork is power. The bill of exchange made a future payment tradable. A complete application and clean bank statements make a business's future receivables easy to understand.
• Speed is a feature. Factors helped merchants who could not wait months to be paid. Fast, revenue-based funding plays the same role now.
• The tool should fit the business. Bills suited traveling merchants, factoring suited textile mills, and card-based advances suited shops and restaurants. The best funding fits how a business actually earns.

Where Limestone fits

Limestone Advance provides merchant cash advances to small businesses across the United States from our office in Suffolk, Virginia. It is a very old idea, delivered with modern tools: a short application, a review centered on how your business really performs, terms in writing, and a goal of same-day funding once a file is approved, signed and final.

Want the modern version explained step by step? Read how a merchant cash advance works, or apply online in a few minutes.

Sources

• Champagne fairs, Wikipedia
• Medici Bank, Wikipedia
• Factoring (finance), Wikipedia
• Merchant cash advance, Wikipedia
• UCC 9-109, Scope, Legal Information Institute, Cornell Law School

• history of finance
• factoring
• bills of exchange
• merchant cash advance
• revenue-based funding