Factoring and MCA liens: whose claim comes first on your freight receivables

You factor your loads because brokers pay in 30 to 45 days and fuel does not wait that long. Then a rough quarter hit, an advance company called with money the same afternoon, and you took it. Now there are two companies with a claim to the same settlement checks, and your factor has started asking questions.

This is one of the most common and least understood collisions in trucking. It is not really a cash flow problem. It is a lien problem, and lien problems have rules.

Two companies, one set of invoices

A factor buys your invoices. An advance company says it is buying your future receivables. Read those two sentences again and the conflict is obvious: both of them are claiming the money brokers owe you.

The reason this is not immediately visible at signing is that the two products collect differently. Your factor gets paid when the broker remits directly to it. Your advance company usually pulls a fixed amount out of your operating account by ACH. On the surface they look like separate arrangements. On paper at the Secretary of State, they are competing claims to the same collateral.

How a factor secures its position

Factoring is structured as a purchase of specific invoices, but UCC Article 9 applies to sales of accounts as well as to loans secured by them. Section 9-109(a)(3) says so directly. That is why your factor filed a UCC-1 financing statement covering accounts and proceeds when you onboarded, and why it ran a search first to confirm nobody else was already there.

Your factor also sends notices of assignment to the brokers and shippers you haul for. Under UCC section 9-406, once an account debtor receives an authenticated notification, it discharges its obligation by paying the assignee. That letter is what makes the broker send the check to the factor instead of to you.

How an advance company secures its position

Most advance agreements come with their own UCC-1, and it is usually broad. The collateral description often reaches all accounts, all payment intangibles, deposit accounts, equipment, and general intangibles. It is a blanket filing on a business that already sold its accounts.

Some funders file quietly and never notify anyone. Others send their own notice of assignment to your brokers, which is where the trouble starts.

First to file, and what that means at settlement time

UCC section 9-322(a)(1) sets the general rule: among competing perfected interests, priority runs to the first to file or perfect. If your factor filed in 2023 and the advance company filed in 2026, the factor is senior on accounts.

That answers who wins a legal fight. It does not answer what happens on Tuesday when a broker's accounts payable clerk has two assignment letters in the file and no interest in deciding which one controls. In practice, the broker holds the check, or puts you on a do not load list until somebody sends a release. Carriers lose weeks of revenue to that specific administrative standoff.

For registered entities, the correct filing office is generally the state where the business is organized under UCC section 9-501, not where you keep the trucks. If you want to know exactly what is on file against your company, that is where to search, and the search is worth running before you assume anything.

The covenant that turns an advance into a factoring default

Here is the part most carriers do not see coming. Your factoring agreement almost certainly contains a negative covenant. Typical language prohibits granting any lien on accounts, incurring additional indebtedness, or entering into any agreement that assigns receivables to a third party.

Taking an advance can breach that covenant the day the funder files. Your factor may then have the right to raise your reserve, cut your advance rate, stop funding new loads, or terminate the relationship, all without you having missed a single obligation to the factor.

Factors do not always exercise those rights. Many will work with a carrier that comes to them first. Almost none react well to discovering the filing on their own during a routine search.

The math on a six truck operation

Take a carrier running six trucks at roughly $38,000 in weekly gross settlements.

Factoring at a 3 percent fee costs about $1,140 a week. Fuel runs near $11,400, driver pay near $10,600, and truck payments, insurance, maintenance, and permits together take about $9,500. That leaves roughly $5,360 a week before the advance.

Now add an advance of $85,000 at a 1.40 factor rate, so $119,000 in payback collected at $780 per business day. That is about $3,900 a week.

The carrier is left with roughly $1,460 weekly for owner compensation, repairs, and anything unexpected. One blown turbo and the week is negative. This is why advance debt in trucking rarely stays at one advance. The gap gets filled with a second one, and the second one collects from the same $38,000.

What a subordination agreement does, and when you can get one

There is a document that solves this cleanly when both sides cooperate: an intercreditor or subordination agreement.

In it, the advance company acknowledges the factor's senior position on accounts and agrees not to notify your brokers or interfere with the factor's collections. The factor gets certainty. The advance company keeps its blanket lien on everything else and keeps collecting by ACH from your operating account.

Factors ask for these routinely, because the alternative is dropping a carrier that is otherwise performing. Whether an advance company will sign one varies widely. Some have standard forms and execute them within a week. Others refuse on principle, and a few will only sign in exchange for a larger daily amount, which defeats the point.

Two things improve your odds. Ask before the advance funds, not after, because a funder that has not yet released money has more reason to accommodate. And go to your factor first rather than waiting to be found out, since a factor that hears it from you is far more likely to negotiate than one that discovers a new UCC filing during a routine search.

If neither company will move, that impasse is itself useful information. It usually means the file needs a restructure or a resolution rather than another workaround.

Untangling it in the right order

Sequence matters more than speed here.

First, run the UCC search. Search your entity name in the state of organization and pull every active filing with the collateral descriptions. You cannot negotiate around liens you have not read.

Second, read your factoring agreement. Find the covenants, the term length, the notice period for termination, which is commonly 30 to 90 days, and any early termination fee. Those terms decide what options you actually have.

Third, read the advance agreement's collateral description and its default provisions. Note specifically what counts as diverting receipts, because in trucking that language is often broad enough to cover changing factors.

Fourth, do not move the money flow before you have advice. Redirecting settlements to a new factor or a new bank while an advance is outstanding is one of the fastest routes to a default declaration and a suit against the guarantor.

Fifth, reconcile the payoff. Advance payoff demands frequently overstate the balance once every cleared debit, returned item fee, and partial payment is credited against the funder's own ledger. Getting an accurate number is the foundation of any negotiation.

This is general information about how these arrangements interact, not legal advice. Lien priority disputes and factoring covenants turn on the exact documents in your file and on the governing state law, so a licensed attorney should review yours before you make a move.

Where we come in is the negotiation. We work with carriers to reconcile what has actually been collected, talk with the advance company about restructuring the daily amount or resolving the balance, and coordinate with experienced MCA defense counsel if a case has already been filed. Past negotiations in this space have often landed in the range of 40 to 60 cents on the dollar, and no outcome can be promised in advance.

Start with the UCC search. It takes an afternoon and it tells you who is actually standing in line for your settlements.