What is a UCC and why do you need one for factoring?

UCC is shorthand for Uniform Commercial Code. The Uniform Commercial Code is a framework of regulations that govern interstate commerce. Despite the name, while the code has been adopted by all 50 states, it is not completely uniform. Some states have altered portions of the code, and some states interpret identical portions of the code differently. These distinctions are important to understand when doing business in different jurisdictions.

Primarily, the UCC deals with business contracts and liens. The code is divided into 9 articles that each deal with different pieces of commercial law, such as bills of lading or secured transactions. In addition to trying to provide a consistent framework for business transactions within the United States, the UCC was created to allow businesses to write contracts based on their needs. However, if a particular business contract is silent on certain provisions within the contract, UCC provisions will fill that void.

Besides the factoring agreement, there are a few times your factoring company might specifically mention the UCC. For instance, the Notice of Assignment that a factoring company sends to a client’s customer is a document governed by the UCC. Also, when a factoring company takes on a new client, oftentimes they will file a document known as a UCC-1. The UCC-1 is a legal form that states that the factoring company has an interest in the property of their client. Essentially, a UCC-1 form is a lien that a factoring company places on a business showing their secured interest in their client’s accounts receivable.