What is a UCC when invoice factoring? A UCC, which stands for uniform commercial code, is used to provide a financing statement between businesses who lend funds and those that borrow funds. This financing statement provides a legal record that a creditor has an interest in the debtor’s assets. This provides the lender a collateral interest in the borrowers assets so they can take these assets to be paid back in a case of default on the loan agreement. When invoice factoring the creditor is the factor company and the debtor is the customer they provide factoring services
UCC filing when invoice factoring:
- Most commonly used by factors is the UCC-1 document
- It declares the factor has an interest in the debtors business assets
- Most factoring companies file a blanket UCC which is all assets
- The UCC is put in place as a safety net for the factor
- No factor should file a UCC without consent from the debtor
- UCC filings are part of the standard invoice factoring process
- Debtors should request the UCC be removed when no longer factoring
UCC effects on your business:
- A UCC filed on your business has no negative credit effect
- If you need additional funding a UCC can limit your options
- All invoice factors require some kind of UCC filing
- You many need to remove old UCC’s if lenders left them in place
- A subordination can sometimes be used to via inter-creditor agreements if a lender will not terminate a UCC to free up collateral for other lenders.
Having a UCC filed on your company is a normal part of the invoice factoring process. Several factoring companies can allow for a specific collateral type on the companies business assets rather than a blanket file so look around if you have other assets you may want to use as collateral for other forms of funding. A few invoice factoring companies are offering second position UCC filing which can be done behind a bank or SBA UCC.