What is a Uniform Commercial Code (UCC-1) filing?
A UCC-1, short for Uniform Commercial Code-1, is a legal filing used to create a security interest in the assets of a business or individual. It is typically filed by a lender to establish their claim or lien on a debtor's assets, such as machinery, inventory, or accounts receivable. This filing provides public notice of the creditor's interest in the collateral. The UCC-1 is an essential tool in commercial lending and helps protect the rights of both creditors and debtors in financial transactions involving personal property.
Why do factoring companies file a UCC-1?
Factoring companies typically file a UCC-1 on a trucking company's accounts receivable to establish a security interest in those assets. When a trucking company enters into a factoring arrangement, they typically sell their accounts receivable to the factoring company at a discount in exchange for immediate cash flow. This provides the trucking company with quick access to funds without waiting for their customers to pay their invoices.
By filing a UCC-1 financing statement, the factoring company publicly notifies other factoring companies and lenders that they have a claim or lien on the trucking company's accounts receivable.
Example (purely for hypothetical purposes): Trucking Company A has factored $20,000 worth of invoices in the past month with their factoring company. Subsequently, Trucking Company A files for bankruptcy. If Trucking Company A has another business loan with a UCC-1 filed with priority over their factoring company, that lender likely would be able to collect payments from the brokers for the amount owed to the lender before the factoring company could collect on the $20,000 worth of accounts receivable already paid out. That is why it is so important for factoring companies to have the first position UCC-1 filed on their customers’ accounts receivable in order to offer their services.
How can a UCC-1 affect my business?
Some factoring companies will file a "Blanket" UCC-1 that gives them first right to all assets of their customer in the event of default or bankruptcy. Others will only file on the accounts receivable asset specifically. TruckSmarter only files on accounts receivable.
Having a UCC-1 filing on all your assets can limit your ability to obtain some types of loans or business lines of credit if those lenders require a first position UCC-1 on your assets.
What can I do if I don’t know who filed a UCC-1 on my company?
It's common for factoring companies to use 3rd party services to file their UCC-1s. Those companies' names will appear on the UCC-1 filing and you may not recognize them at first. If you aren't sure who filed a UCC-1 on your company, you can follow the steps below:
- Look at the date the UCC-1 was filed. Check your email history around that time and see if you were talking to a factoring company or lender that may have filed it.
- Contact the UCC filing company. They will have the company that filed the UCC-1 reach out shortly after. The 3 most common filing companies are listed below along with their contact info:
|FIRST CORPORATE SOLUTIONS
|CORPORATION SERVICE COMPANY
|C T CORPORATION SYSTEM
How can I remove a UCC-1 Filing on my Business?
TruckSmarter can remove a UCC-1 filing on your behalf with written authorization from the lender that filed it. A General Letter of Release from a previous factoring company typically serves this purpose or a payoff letter from a past lender. Written authorization by email stating the UCC-1 filing number and our authorization to terminate it is also acceptable.
If you've applied for TruckSmarter Factoring and have a UCC-1 filed on your business that covers accounts receivable, it can delay approval of your application. Our sales team will reach out to you to help resolve the issue and advise on the steps for us to work together.
TruckSmarter is available Monday–Friday, 8:30am–5:00pm CT. For requests outside of these hours, please either submit a request through the TruckSmarter app or send a message to one of the following:
Phone/Text Message: +1 (207) 309-3397
What is a UCC-1 Subordination?
Having a UCC-1 doesn't preclude you from using a factoring company. Many drivers have filings for truck loans that do not cover accounts receivable. Others have outdated or invalid UCC-1 filings from past factoring companies they no longer work with that can be removed. Sometimes, a UCC-1 will be filed for a business loan like the ones given out from the Small Business Administration (SBA). If the loan is still being paid back, it typically can't be removed. However, there is a process that can allow you to proceed with factoring called subordination.
A UCC-1 Subordination is a simple agreement signed by the lender and your factoring company that states the lender agrees to give up its right to collect on your accounts receivable assets ahead of your factoring company. They still maintain their interest in the rest of the assets their UCC-1 covers.
Lenders like the SBA may agree to subordinate their UCC-1 filings and TruckSmarter can guide you through that process. After a subordination agreement is signed, you are eligible to be approved for factoring, subject to meeting all of the other requirements.