When your trucking business is falling behind on those merchant cash advance payments, every invoice might feel like gold you can’t reach. If you’re currently factoring some of your loads, here’s the simple reality of what’s already been sold.
You sell the invoice to the factor at a discount and get the money up front. That invoice is not your property to mortgage again. Once it’s factored, that money is already claimed.
Three Documents Control Where That Cash Flows
Three documents control where that cash flows: the Notice of Assignment, or NOA, the Letter of Release, or LOR, and the UCC-1 filing. Each one locks the path of the payment in a different way. These three papers are your traffic controllers. They tell every dollar where to go. Your job is to know which document is holding the key when you talk about any kind of debt relief.
The first is the Notice of Assignment, or NOA. It is the notice given by the factoring company to a broker or shipper stating that the carrier’s right to receive payment on specified invoices has been assigned to the factoring company. In simple English, a NOA tells the broker or shipper that they must pay the factor directly for the invoices being factored. The NOA only covers those invoices listed on the NOA, or invoices covered by the factoring agreement. It does not cover every invoice. The reason for a NOA is to make sure that the broker or shipper pays the factor directly, and so the factor’s funds can be sent to the carrier sooner, and not misdirected.
Make sure you put a copy of your NOA in the carrier packet when you set up with a new broker. Want to work with a new factor or change a current factor? You should make sure to send the new NOA to all brokers you book frequently with. Approval of an NOA can take 3-5 days, and your factor’s payment terms might not kick in until it’s approved. For anyone working through MCA debt, the takeaway is simple: on any invoice covered by an NOA, the broker’s payment is already spoken for.
The second document is the Letter of Release, or LOR. A Letter of Release is a legal document from a factoring company confirming that the factoring relationship or agreement is no longer in effect between the company and the carrier. If you used to factor and now want to be paid directly, or if you are moving to a new factor, you need an LOR. If you do not have it, brokers may try to hold payment on a load until they are confident they are paying the right party. Brokers ask the carrier for the LOR to prove that the relationship with the old factor has ended.
You can obtain an LOR from your prior factoring company. Most factors will not issue an LOR while you still owe them a balance. If you plan to stop factoring entirely, you may need to wait until that balance is paid off. If you’re changing factors, then there can be a buyout, meaning the new factoring company will pay for the carrier’s outstanding invoices. This is especially important when seeking MCA relief because if you’re short on cash, an unpaid factoring balance could prevent you from leaving your current factor.
The third document is the UCC-1. A UCC-1 is a document filed under the Uniform Commercial Code that establishes a security interest in a business’s assets. It’s typically filed by a lender to establish a claim or lien on business assets, such as machinery, inventory, or accounts receivable. A UCC-1 gives public notice of a creditor’s interest in collateral. Factors usually file a UCC-1 on a trucking company’s accounts receivable. Factoring is a financing method where a business sells its accounts receivable to a third-party company (the factor) at a discount in exchange for immediate cash flow, instead of waiting for customers to pay their invoices. The UCC-1 filing notifies other factors and lenders that the factor has a claim on the receivables.
Priority is key for factors who need a first-position UCC-1 on receivables to offer their services. To see why, consider this hypothetical: Trucking Company A factored $20,000 worth of invoices last month. Now Trucking Company A goes bankrupt. The factor is looking for its $20,000 payment. But Trucking Company A also has a business loan in place. If the UCC-1 filed by Trucking Company A’s business loan lender has priority over the factor’s UCC-1, then that lender could very likely get paid by the brokers before the factor gets paid out of those same receivables. That’s why the factor demands first position.
Some factors will file a “blanket” UCC-1, giving them first right to all assets of the customer upon default or bankruptcy. Others will file on the accounts receivable only. You can see that a UCC-1 on all your business assets could make it difficult to get a loan or business line of credit if the other lender is insisting on first position. If new financing is part of how you plan to get out from under an MCA, find out what your factor filed before you apply.
You also need to know how to remove a UCC-1. First, let’s identify who actually filed it. A lot of times it’s a third-party filing service. You won’t recognize the name. It will be on the filing itself. Your next move is to take a look back at your email around the filing date. There is a chance that maybe you were working with a factor or a lender who would’ve made a filing.
Otherwise, you can call the filing company. They know who filed. Most often the filing company is going to be First Corporate Solutions, Corporate Service Company or CT Corporation System. Once you know who filed, you can contact the filer directly, and ask for more information, and also ask them to remove it if you don’t have a relationship with them.
Check Your Paperwork Before Starting to Negotiate a Debt Relief Plan
Before you enter debt relief, learn to identify and confirm your NOAs, LORs, and UCC-1 filings. That knowledge is crucial to avoid payment delays and to give yourself the freedom to choose what works best for your business. Debt relief planning must work around those documents, not through them. Always check your paperwork before starting to negotiate a debt relief plan.
