Two NOAs, one carrier: when another factor claims the same invoices

Conflicting notices of assignment mean a broker or shipper has received NOAs from two different factors for the same carrier, and until the conflict is resolved, a careful broker will hold payment rather than risk paying twice. For you, it means the invoices you bought may not be collected on schedule, and possibly not at all. The cause decides the fix, and there are five usual ones.

If the third row turns out to be your situation, double factoring covers that path in detail.

Two different rules apply: one decides whom the broker can safely pay, and the other decides which factor owns the invoices.

The broker's rule: §9-406

Under UCC §9-406(a), once a debtor receives a notification that an account has been assigned, it can discharge the debt only by paying the assignee. The rule is written for one assignor and one assignee, and the text doesn't spell out what a debtor should do with notices from two competing factors. That's why brokers freeze: paying either factor could mean paying twice.

The broker's main tool is §9-406(c). It can request reasonable proof that the assignment was made, and until an assignee provides it, the debtor may discharge its obligation by paying the carrier. Expect to be asked, and have your proof ready before you are.

The factors' rule: §9-322, §9-318 and §9-515

Between two factors, §9-322(a)(1) ranks conflicting perfected interests by priority in time of filing or perfection, so the filing dates on the two UCC-1s are where the analysis starts. Attorney Steven Kurtz, writing in the IFA's Commercial Factor magazine, calls Article 9 "a pure race statute," in which the first to record generally wins even if it knew about the other creditor.

A factor that never filed is in a weak spot. Under §9-318(b), while a buyer's interest is unperfected, the carrier is treated as still holding the rights it sold, for purposes of later purchasers.

Age matters too. A UCC-1 is effective for 5 years and lapses unless continued, and on lapse the interest is deemed never perfected as against a purchaser of the collateral for value (§9-515(a) and (c)). A factor holding a 6-year-old filing with no continuation may have less than it thinks.

These rules interact with both factors' contracts, the facts and state case law, so talk to counsel before you assert priority in writing.

Contain first, then investigate. This order keeps you from funding more invoices into a dispute and gets you the documents you'll need.

1. 1

   Stop funding the client

   Pause new advances on all of the carrier's invoices, not just the ones owed by that broker, until you know the cause. Tell the client you're resolving a payment-instruction issue, and don't accuse anyone yet.

2. 2

   Get the other NOA from the broker

   Ask the broker for a copy of the competing notice, the date it was received, and a list of any invoices it has already paid, and to whom.

3. 3

   Run a fresh UCC search

   Search the carrier's exact legal name in its state of organization, and note every secured party, filing date and status. The UCC directory links each state's official search.

4. 4

   Call the other factor at a number you found yourself

   Use its website or an industry directory, not the number on the NOA. Ask whether it sent the notice, whether it has open invoices on this carrier, and which loads they are.

5. 5

   Hear the carrier's version

   Call the verified officer on the number from onboarding and ask about every factor, lender and cash-advance company the carrier has used. Compare the answer with the UCC search.

6. 6

   Send the broker your proof packet

   Include the assignment clause and signature page of your factoring agreement, your UCC-1 filing acknowledgment, your NOA with the broker's acknowledgment, and your schedule of accounts for the disputed invoices.

7. 7

   Ask the broker to hold, in writing

   Request that the broker pay neither factor on disputed invoices until it receives a release, a joint instruction or a court order. A hold is better for you than a payment to the wrong party.

8. 8

   Write it all down

   Record names, numbers, times and documents as you go. If this turns into a dispute, a complete file makes every later conversation shorter.

The other factor's answers usually tell you which case you're in within one phone call.

A forged notice often borrows a real carrier's identity as well as a factor's name. Carrier identity theft covers how to confirm that the person you onboarded is really the carrier.

Most conflicts end with a document rather than a lawsuit. These are the usual ones.

Letter of release

If the prior factor has no open invoices, it sends a letter of release to the broker and files a UCC-3 termination. Ask for both, and don't fund until the broker confirms it has changed its payee to you.

Buyout

If the prior factor has open invoices, you can pay off its outstanding advances and fees in exchange for a release and a UCC-3. Get a payoff letter with the exact amount, a good-through date, the invoices covered and the release it will deliver on payment.

Confirm the payoff wire instructions by calling the prior factor at a number you found yourself. A payoff wire is exactly the kind of payment business email compromise targets.

A written split

Occasionally two factors agree to split a carrier by invoice or by debtor, with each releasing the other's share. If you do this, send the broker a joint letter signed by both factors that lists which invoices or debtors each one owns.

Exit

If the carrier double factored deliberately, the right answer may be to stop funding, enforce your repurchase rights and leave.

Each of these depends on your agreement, the other factor's agreement and state law, so talk to counsel before you sign a payoff or a split.

Then you have a priority question and a recourse question, and the broker may not be your best target. The UCC's discharge rule addresses payment to the assignor (the carrier), not a choice between two assignees, so whether the broker is discharged by paying the other factor depends on the order of the notices, the proof each factor gave, and your state's case law.

In practice, your claim may lie against the other factor, if you have priority under §9-322, or against your client, under your agreement's repurchase and warranty terms. Start by asking the broker for its payment records, then compare them with your schedule and both UCC filing dates.

Talk to counsel before you send a demand to another factor.

Nearly every conflict is visible before the first advance if you look. Make these part of onboarding:

• Run a UCC search under the exact legal name in the state of organization before the first funding. See UCC searches before funding.
• Ask for every factor, lender and cash-advance company the carrier has used in the last 5 years, and match each answer to the search.
• Get a release letter and UCC-3, or a payoff letter, for every prior factor before you fund.
• Send your NOA to each debtor and get it acknowledged before that debtor's first funded invoice. The NOA generator makes this quick.
• On every verification call, ask: "Is any other notice of assignment on file for this carrier?"
• Re-run the UCC search at renewal and before you raise a client's limit.
• Confirm the identity of the person signing your agreement, so a forged notice has less to borrow.

Brokers have their own exposure: pay the wrong factor and they may pay twice. A careful AP team holds the disputed invoices, asks both factors for proof, and waits for a release or a joint instruction. A broker caught between two factors that won't agree can also ask a court to decide through interpleader, which is slow for everyone.

Some brokers pay through networks that track a factor of record. Triumph says its network "matches the factor of record to a carrier's submitted paperwork" and that "If it doesn't match, we don't pay" (the vendor's description of its own product). If your debtors use a network like that, make sure your factor-of-record status is current there too, because that's what the broker's payment system will check.

The simplest way to earn a broker's trust in a dispute is to be the factor with a complete, consistent file: one PDF with your agreement excerpt, UCC-1, NOA, acknowledgment and schedule, sent the same day it's asked for.