As a carrier with your own authority, you may choose to work with a factoring company, where, for a low rate, you collect your accounts receivable - or revenue - faster. It is standard that each factoring company you work with file a Uniform Commercial Code (UCC) financing statement. A UCC is a type of lien, or a right for the factor to own or collect some collateral. In this case, in the trucking industry, collateral typically equates to accounts receivable, or collections, both of which are the revenue you are owed for hauling freight.
While the UCC is an essential document in freight factoring, it can add some complications when switching factoring companies. This article examines what a UCC is, why it's critical to freight factoring, and how TrueNorth can support you and your factoring needs.
What is a UCC filing?
A UCC filing is a legal filing that gives the factoring company the right to claim a particular asset. In this case, it gives the factor the right to collect on your accounts receivable. It operates similarly to how a lender for a truck or other equipment may file a UCC, giving them the right to take that asset should that person not pay.
The factoring company is responsible for filing the UCC. This happens at some point in signing on to work with them. The level of visibility into the UCC varies from company to company. However, it's important to note, that once filed, you as carrier are legally bound to it until termination.
While rare, having more than one UCC on the same asset is possible. Whoever filed the first one is first in line to collect. The second factoring company, or creditor, would be next in line to collect on that collateral.
Why are UCCs important?
Established in 1952, ‚The Uniform Commercial Code (UCC) is a comprehensive set of laws governing all commercial transactions in the United States UCCs are important in trucking specifically because it ensures standardization across state lines.
When a factoring company files a UCC, it protects its right to collect on the accounts you have assigned to them and protects your funds from being disputed by publicly announcing who has the right to collect on those accounts.
Suppose the factoring company encounters an issue collecting payment on an invoice (whether it is resourced or the customer refuses). In that case, the UCC filing is legal proof of who owns the right to collect those accounts. Or, suppose a carrier entered into business with a factoring company and another company comes in and tries to collect on those funds, the UCC would clarify who has the right to them. It is legal evidence of the factoring contract, notifying anyone else who might want to enter into a contract with this person that there's already one that that particular factor has first right to those funds.
Sometimes, carriers in an existing factoring relationship are unaware they have signed a contract with a factoring company and are unaware that a legally-binding UCC with their company name and sometimes their name, exists.
They often do not know or understand the terms even if they have signed a contract with a factoring company. It's critical that you read the terms of the contract, which will likely lay out how long the contract lasts, how or if you can cancel the contract, how you can communicate with the factoring company such as access to a portal, if there are any fees for terminating the factoring contract, among other concerns.
How do you terminate a factoring contract to cancel the UCC?
Each contract that results in a UCC filing carries its own terms. Commonly, they have a 1-year term.
It's not commonly known that many contracts require 30-, 60-, or even 90-day notice before renewal to cancel the contract, or the contract will automatically renew for another year or even longer.
Some have an early buyout option at a fixed cost of $5,000 or $10,000. It's possible to negotiate that buyout number again - depending on the terms of your contract. In addition, before a factoring company will release a Carrier [or trucking company] from a contract, the carrier must not have any outstanding balances or must pay off those balances before the UCC is canceled, and the carrier can be released from his current factoring contract.
How can TrueNorth support your factoring needs?
As a platform supporting carriers running under their authority, TrueNorth provides freight factoring for you to get paid faster. If you have ever worked with a factoring company, you most likely signed a contract and will have a UCC. TrueNorth will not enter into a contract with an carrier if a prior UCC exists. Depending on your situation, we will may be able to help you cancel your existing contract and therefore cancel the UCC so that you can enter into a new contract with TrueNorth.
Contrary to many factoring companies, below is a list and description of the services available to you when you join TrueNorth.
1. Search for an existing UCC
TrueNorth will search and see if anyone else has filed a UCC under your company or personal name.
Depending on your location, the search process is either free or requires a paid subscription. If your state is one that is not free, TrueNorth will utilize its paid subscription service to find it.
Below is a list of all fifty states and how they classify, with links to search. As a note, some free searches require you to register for an account (also free).
Search is free
- Alaska
- Arizona
- California
- Colorado
- Connecticut
- Florida
- Idaho
- Iowa
- Kentucky
- Maryland
- New Mexico
- New York
- North Carolina
- Ohio
- Oklahoma
- Oregon
- Rhode Island
- Vermont
- Washington
- West Virginia
Search is paid
- Arkansas
- Delaware
- Georgia
- Hawaii
- Indiana
- Kansas
- Louisiana
- Maine
- Minnesota
- Missouri
- Montana
- Nebraska
- Nevada
- New Hampshire
- South Dakota
- Texas
- Utah
- Virginia
- Wisconsin
- Wyoming
Simple search is free, but details are paid
- Alabama
- Illinois
- Massachusetts
- Michigan
- Mississippi
- New Jersey
- North Dakota
- Pennsylvania
- South Carolina
- Tennessee
In the search, TrueNorth requests a copy of the UCC to try to learn the name of the creditor and all of the terms, including collateral (truck, all assets, or all accounts receivable, etc).
2. Help you understand your existing UCC
If there is already a UCC in your name, we will help you explore it so you can fully understand it. Is the UCC active? Who is the factoring company or other creditor? What does the contract underlying the UCC require? Are there funds owed? We'll help you contact the existing factoring company to get a copy of the contract, figure out what aging accounts you have, and how you can get out of the contract. You need to have that information to have all the data you deserve.
3. Request an Aging Report and analyze outstanding balances
Aging Reports tell you how many outstanding funds are still owed to you or that you owe the company. We will help you request your Aging Report and analyze it so you can understand it and determine a path forward. The process often goes as follows:
- As Carrier, you provide the documentation of all invoices to TrueNorth.
- TrueNorth manually analyzes the quality of each outstanding invoice to determine if it's possible to collect those outstanding invoices and negotiate a buyout with the current factoring company. We look at factors such as the amount of time passed, whether it has all necessary signatures, if it is legible, and if parts are mistakenly cut off, etc.
- Once TrueNorth determines how much of it is deemed collectible vs. uncollectible, together we can discuss a potential plan to move forward.
In addition, once you join TrueNorth, we can help ensure future invoices and load documentation do not have these same problems.
4. Provide you with options to move forward
Once familiar with your situation, we'll talk you through your options. For example, if there is an outstanding balance, your options may include:
- Pay it off outright.
- Negotiate with the factor to try to get the balance down
- Transfer balance to your new factoring company (TrueNorth). This entails purchasing the invoices from them when the notice period is up or at another time worked out through negotiations, and we will do our best to help you collect on the balance.
5. File the Release of Assignment
A Release of Assignment is needed to move into a new contract with a new factoring company. This document relinquishes the existing factor of its right to collect. We will go through the process of working together with your current factoring company to complete this and cancel your existing UCC so that you can sign up with us as your new factor.
6. File a new UCC as your new factoring company
We'll help you enter into a new factoring relationship, a new contract, and a new UCC with TrueNorth. You're guaranteed complete transparency throughout this process, and you will be able to know what you're signing up for - which may be a radically better experience than you had before. Unlike most factoring contracts, TrueNorth contracts are month-to-month with no termination fees.
Interested in learning more about how TrueNorth can support your business needs?
TrueNorth offers a single platform for carriers to run and grow their trucking business. When you work with us, you get factoring services, access to LoadCentral which compiles multiple load sources into one, our fuel card, and back-office support to maximize your profits. Learn more here.
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