The UCC-1 a Factor Files on Your Invoices

What a UCC-1 on accounts receivable covers

A UCC-1 financing statement tells the world that a secured party claims an interest in collateral the form describes. When a factor files one, the collateral is supposed to be the accounts the carrier is selling, meaning the invoices. The notice of assignment tells a particular broker where to send a check. The UCC-1 tells every later creditor that those accounts are already claimed. Brokers do not usually read the UCC index. Lenders and the next factor do.

The filing is normal. A factor who advances on invoices without a public filing is taking a risk that another creditor will claim the same invoices. You should expect the filing. You should not expect it to read like a judgment, a tax lien, or a repossession. If a caller says "there is a judgment from your factor," ask for the search printout. If the printout is a UCC-1, correct the word. Then read the collateral box. The word "normal" applies to a filing against accounts. It does not apply to whatever words someone typed in that box.

There is no FMCSA form for this. The filing office is the state's UCC index. The factor prepares it. You are entitled to a copy before or when it is filed. Ask for the copy. Do not learn the collateral description from the lender's voicemail.

Why the truck lender cares

The truck lender's lien is on the equipment. The lender's search, before a refinance or a new note, looks for anything else filed against you. A factor filing that mentions accounts only is something the lender can often live with, sometimes with an intercreditor letter that says the factor does not claim the trucks and the lender does not claim the purchased invoices. A factor filing that says all assets is a filing against the trucks too, in the lender's eyes, until someone amends it. That is the phone call.

Send the proposed collateral description to the lender before you sign the factoring contract. Ask the lender whether they require a limitation, a subordination, or a waiver. Do this while you can still walk away. After the UCC-1 is filed and the first invoices are funded, you are asking the factor for a favor and asking the lender for patience at the same time. Lenders also file their own UCC-1. Yours may already be on the index. The factor will see it. That is another reason to introduce the two creditors before either one is surprised.

Blanket lien versus invoices only

Read the collateral description word for word. "All accounts" or "accounts receivable arising from freight" is the narrow filing. "All assets," "all personal property," "equipment," "inventory," and "proceeds of every kind" are wider. Proceeds of accounts is a normal phrase, because the cash paid on an invoice is proceeds. Proceeds of the truck is not what you think you sold. If you cannot tell which proceeds the sentence means, ask for a rewrite.

Ask for a description limited to accounts, and to the proceeds of those accounts, and ask that equipment, titled vehicles, and the lender's collateral be excluded in words. Get the revised description in the contract and on the UCC-1. A narrow contract and a broad UCC-1 still publishes the broad claim. The public form is what the search shows.

This is not a lecture on who wins a priority fight. If the description is already too wide and both creditors are claiming the same truck, stop funding new invoices and get the two creditors to amend the filing. Do not haul through that fight and hope a blog post ranks the liens.

The search you run before you sign

Search the UCC index of the state where your company is organized, under the exact legal name on the articles and under any prior name. A comma, an LLC, or an old name you used on the authority can hide a filing if you search only the nickname. Save the results. You want to see the lender, any old factor, and any filing you do not recognize.

Do this before the new factor files, not after the lender calls. An old factor's UCC-1 that was never terminated will sit next to the new one. The new factor may still file, and you will have two public claims on the same invoices. The exit from the old factor is not finished until that old filing is terminated. If the search shows a stranger, find out who it is before you assign the invoices. Paying a factor for invoices a different creditor already claims is how the advance comes back.

The search is free or cheap depending on the state. This page will not quote a fee. The index will. The cost of the search is not a reason to skip it.

UCC-3 termination when you leave

A UCC-3 is the amendment that terminates the financing statement. The factor files it. You confirm it. Ask for the file number of the original UCC-1 and the file number of the UCC-3. Search the index after they say it is done. A termination that was prepared and not filed is not a termination. A termination filed against the wrong file number leaves the original in place.

Put both numbers on the checklist in the cancellation sequence. Do not sign the next factor's notice of assignment while the old filing is still live, unless the new factor has agreed in writing to take that risk and your lender has agreed too. Most of the time the right move is to wait. Waiting is cheaper than a priority dispute over a week of invoices.

If the factor refuses to file the UCC-3 after you have paid every invoice the contract says you owe, the contract and the state's filing rules are the remedy, not a social-media complaint. Keep the payoff letter. It is the exhibit that says the debt the filing secured is done.

A lien that outlives the contract

Contracts sometimes say the filing continues until the factor is satisfied, in its discretion, that no further claims exist. That sentence can outlive the loads. A filing that remains after you have stopped factoring still blocks the next factor, who will not want second position on your invoices, and it can block a refinance, because the lender will not close on a surprise. The filing number belongs on the exit checklist until the index is clean.

Check the index again thirty days after termination, not only the day they promise to file. Amendments take time to post. A clean search you printed too early is a false comfort. If the filing reappears because an amendment was wrong, send the printout back to the factor and do not assume it fixed itself.

The contract-terms page can explain the security-interest paragraph. This page is what the public record actually shows.

If you operate under more than one company, search each legal name. A filing against the old corporation does not move itself to the new LLC, and a filing against the LLC does not warn a lender who only searched the old name. The index is literal. Your org chart is not.

Frequently Asked Questions