Why Factors Should Continue Due Diligence on Their Client After Filing Their Financing Statement

Allen J. Heffner and Bruce E. Loren
Mar 28, 2022

One of a Factor’s main protections is its blanket security interest in all the Client’s assets, including the Client’s receivables. The security interest gives the Factor some level of protection that it will be able to be made whole in the event things go sideways. The security interest is most often provided for in standard language in the Factoring Agreement whereby the Client agrees to provide the Factor with a first priority security interest in the Client’s collateral. However, to be effective and have priority against other secured and unsecured creditors, the Factor must properly perfect its security interest. Assuming the Client has executed the Factoring Agreement (and the Factoring Agreement grants the Factor with a security interest in the Collateral), the Factor can “perfect” its security interest by filing a UCC-1 Financing Statement. This Financing Statement puts the world on notice of the Factor’s security interest and establishes the Factor’s priority with respect to the Collateral.

However, the initial filing of this UCC-1 Financing Statement should not be the last time that a Factor pays attention to its Financing Statement. There are certain situations where Factors must take affirmative actions to maintain the perfection and security of its Financing Statement.

  • The Client changes its name – Generally, the law construes the Financing Statements stringently, meaning that the Client’s name on the Financing Statement must exactly match the Client’s legal name. A Financing Statement that identifies the Client only by a d/b/a or trade name may not be effective.


However, situations arise where the Client will change its name after the filing of a Financing Statement, without notice to the Factor. This can lead to two problems. First, it creates confusion as to whether the Factor’s security interest covers the “new” company. Second, the name change may inhibit third-parties’ abilities to perform a valid UCC lien search on the entity as the initial Factor’s Financing Statement may not show up when searching for the name of the new company. To maintain a perfected security interest, generally the law requires the Factor to file an amendment, adding the new name to the record. Failure to do so may result in the security interest becoming unperfected for after-acquired collateral.

  • The Client relocates –The Financing Statement must be filed in the state where the Client is organized. If the Client is organized in Oklahoma, has its main office in Texas, and has offices throughout the United States, the Factor must file the Financing Statement in Oklahoma to cover all the Client’s assets. However, laws about perfection of security interests can vary greatly from state-to-state. If the Client were to re-locate, the Factor must file a new Financing Statement in the jurisdiction where the Client re-located or its security interest may become unperfected.

While the Factoring Agreement may require the Client to notify the Factor of changes in its name, any mergers or acquisitions, or if it re-locates, the reality is that often times the Client will fail to do so. Factors must continually monitor their Clients for issues like these so that it can timely file amended or separate Financing Statements as needed. In addition to monitoring the secured registry, some of our Factoring Clients prepare quarterly questionnaires for their Clients to confirm there are no name changes or re-locations. This questionnaire allows the Factor to stay up-to-date on their Clients’ businesses and puts the onus on the Clients to timely disclose these changes.

Additionally, we always advise our Factoring Clients to conduct periodic reviews of their Clients’ bank statements for any unusual debits or credits that could reveal other financing received by the Client. This diligence allows the Factor to potentially discover issues with their Client earlier than usual, such as situations where the Client has retained a merchant cash advance company or if the Client is having financial difficulty.

This post-filing diligence will help alert the Factor to other secured creditors and may be able to forecast other problems that can be addressed prior to things getting out of hand. Factors that rest on their laurels after filing their Financing Statement risk running into unwanted and possibly expensive headaches.

Bruce Loren and Allen Heffner of the Loren & Kean Law Firm are based in Palm Beach Gardens and Fort Lauderdale. For over 25 years, Mr. Loren has focused his practice on construction law and factoring law.  Mr. Loren has achieved the title of “Certified in Construction Law” by the Florida Bar. The Firm represents factoring companies in a wide range of industries, including construction, regarding all aspects of litigation and dispute resolution. Mr. Loren and Mr. Heffner can be reached at bloren@lorenkeanlaw.com or aheffner@lorenkeanlaw.com or 561-615-5701.