The Uniform Commercial Code is a set of laws that exists to promote a uniform set of rules for commerce between the states. 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.
As with any financial service industry doing business today, invoice factoring has a set of rules and regulations that govern how it operates in the market.
These rules protect both consumers and service providers. Consumers can confidently do business knowing that their service provider is following strict guidelines, and the service provider is able to confidently analyze risk and set terms based on the requirements and protections the regulations provide. In invoice factoring, the Uniform Commercial Code (UCC) is an important set of regulations that provide this framework for doing business.
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 contract, 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.