In simple terms, a UCC Filing is a record of collateralized debt, filed publicly by a lender to your business. UCC stands for “Uniform Commercial Code.” Basically, the UCC itself is a list of laws by which separate state governments have agreed to a single definition of any one requirement included in the code. In trucking, companies often operate across state lines, so there needs to be a unified way to keep track of certain aspects of the legal and financial sides of your business, no matter where you are.

When you hear about UCC filings in trucking, they are probably UCC-1 liens. These are published records generated by your lender(s) (e.g. your factoring company) of debt you’ve incurred. Your business name and the assets you are putting up as collateral (in case your customers don’t pay their invoices) are listed in the records.

Why Are UCC Filings Necessary?

Legally, if there is an issue collecting payment on an invoice (whether from your customers or you, if the invoice is recoursed), UCC filings establish a record of what you owe and what collateral your lender has a right to repossess. On a longer-term basis, UCC filings also provide an indication of how many liens are out in respect to your company. This is an important point, because too many liens on your public record may affect your ability to get credit in the future.

What Do I Have to Do?

UCC filings are a normal part of engaging in a factoring agreement. The factoring company will file the UCC lien at some point during the process of getting you signed up. Be sure to get full clarity on the terms of any type of financial contract, though, before any  filings are made that name your business.

Also, try to stay on top of lenders with a published UCC filing on a debt you’ve paid off. When your agreements have been fulfilled, make sure that a UCC-3 Filing (different than the initial filing) is sent by your lender indicating that the agreement has been satisfied. The purpose of a UCC-3 Filing is to remove the lien from the public record. Many partnering financiers unfortunately just wait for UCC filings to expire (after five years), which can leave you with unnecessary filings on record. You don’t want a paid-off borrowing agreement to stop you from accessing capital you might need later for reinvestment and growth.

A quick search on the state department web site where your company is located or headquartered (use terms like “UCC Filing” and/or the name of your business) can be an easy way to review expired agreements that need to be removed from public record.

Finally, you want to avoid a large number of UCC filings (liens) stacking up against your business, which could be a red flag to not only future lenders, but other business partners.

Are There Different Types of UCC Filings?

Yes. The two most common types of UCC Filings related to trucking include an All-Asset UCC Filing (or blanket lien) and a Collateral Specific UCC Filing. Whenever possible, seek a Collateral Specific UCC Filing in your dealings with lenders (for instance, if you’re borrowing specifically to pay for a truck, or if you’re only borrowing against invoices). Certain -- but definitely not all -- personal assets are protected by law as it relates to business debt, so be thoughtful around blanket liens.

How Does This Affect Factoring Agreements?

It is typical for a factoring company to file a UCC lien publicly illustrating your agreement and collateral arrangement (aka, reporting their secured interest in the accounts receivable you have sold to them). If you are shopping around for factoring companies, it’s important to know if/when any given company normally files the lien. Some factoring companies will file when you are still in the application stage of a prospective agreement. Should you decide later not to sign up with that company, the filing will have to be terminated before you can enter into an agreement with another company. This can cause unwelcome delays and surprises you were not unexpecting.

Still have questions about UCC Filings? Reach out to RTS Financial today!

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