Priority runs on filing order, not on who bought the invoice. Article 9 governs an outright sale of accounts the same way it governs a loan against them, so purchasing a receivable does not exempt you from filing, and a lender who filed against that carrier years ago can outrank the invoice you funded this morning.
This is the part of the business that surprises people who came from finance. You wired the money. You hold the invoice. You have a signed agreement and an assignment. And a bank that has never heard of this load has a better claim than you do, because it filed first.
Nothing about that is unfair or unusual. It is how a public filing system is supposed to work, and it is knowable in advance for the price of a search. What follows is the machinery, and the one operational habit that keeps you out of most of these situations.
Buying it does not take you outside Article 9
Start with the assumption that causes the trouble. Factoring is a purchase: you buy the receivable, you do not lend against it. So it is natural to think the collateral rules do not apply to you.
They do. UCC § 9-109(a)(3) says the article applies to “a sale of accounts, chattel paper, payment intangibles, or promissory notes.” A sale of accounts is inside Article 9 by design, which means a factor is filing a UCC-1 for the same reason a lender does, and is standing in the same queue.
That single provision is why a factoring company files at all. Not as paperwork, and not because a template said to. Because without perfection you are holding a purchase that the filing system does not know about.
Priority runs on time, and the clock started before you
The ranking rule is one sentence. UCC § 9-322(a)(1):
“Conflicting perfected security interests and agricultural liens rank according to priority in time of filing or perfection.”
First to file or perfect. Not first to fund, not first to sign, not the one who actually advanced the cash against this specific load. The subsection immediately after it adds the other half:
“A perfected security interest or agricultural lien has priority over a conflicting unperfected security interest or agricultural lien.”
So there are two ways to lose a contest you did not know you were in. Someone filed before you, or you never filed at all.
The practical consequence for a factor is worth stating plainly: a general business loan a carrier took three years ago, secured by a blanket lien over all assets including accounts receivable, was filed long before you met that carrier. Your purchase of today’s invoice does not jump that queue. The bank is not doing anything to you. It was simply there first, in public, in a database you can read.
The three ways this actually shows up
A carrier signs with a second factor while still under the first. Sometimes deliberately, more often because the carrier does not understand that the first agreement covers all receivables rather than the invoices it chose to submit. Both factors have agreements. Both may have filed. The order of the filings decides it.
A lender’s blanket lien predates every factor. The most common version, and the least dramatic. The carrier borrowed, the lender filed against all assets, and nobody thought about receivables because the loan was for a truck. The lien is still there, and it still reaches the accounts.
A client is moving between factors. This one is ordinary and it has a choreography: the incoming factor pays off the outgoing factor, the outgoing factor terminates its filing and releases its notification, and the incoming factor files. We covered the whole sequence from the incoming side in taking a client over from another factor. The reason it has a sequence is precisely this section: get the order wrong and you have funded into a position behind someone you were supposed to have replaced.
What a UCC search tells you, and what it does not
The search is cheap, public, and the single highest-value thing you can do before funding a new client. It is also frequently misread.
It tells you what has been filed against that debtor name, and when. That is the raw material for the priority question, and it is the reason your onboarding should not have a “fund now, search later” path in it at all.
It does not tell you whether a filing is still live in substance. A financing statement can sit on the record after the underlying obligation has been satisfied, because terminating it is a separate act that somebody has to perform. An old filing is a question, not a verdict.
It does not tell you whether a name is the right name. Searches match on the debtor’s exact legal name, and a carrier operating under a DBA, a recently reorganised entity, or a name with a punctuation variant can hide filings from a careless search. Getting the legal name exactly right at onboarding is not administrative tidiness, it is what makes the search mean anything.
And it does not tell you what the filing covers. A blanket lien over all assets and a specific lien over one titled truck are both filings, and they land very differently on a receivables purchase.
The notification is a different instrument
Worth separating, because the two get conflated constantly.
A UCC-1 financing statement goes to the state and answers “who ranks ahead of whom.” A notice of assignment goes to the account debtor and answers “who gets paid.” They solve different problems, they can both be present or both be missing independently, and having one does not cover the other.
A factor with a perfect notification and no filing can be paid correctly for months and still lose a priority contest. A factor with a filing and no effective notification has priority over a payment the debtor already sent somewhere else. You want both, and you want them for different reasons.
Where this stops being operational
Everything above is mechanism and search hygiene. The moment there is an actual contest, it is a legal matter and it needs a lawyer, not a consultant.
Route it to counsel when two parties assert competing claims to the same receivable; when a filing’s scope or continued effectiveness is in question; when a subordination or intercreditor arrangement is on the table; and immediately if a bankruptcy filing appears anywhere in the chain, because insolvency rearranges these questions in ways that are outside anything an operator should reason about unaided. FRC advises on how factoring operations run. Who prevails in a priority dispute is a legal question and belongs with a commercial attorney.
Where an outside read fits
Priority problems are almost never discovered in the priority contest. They are discovered at funding, months earlier, by a search that was run properly against the right legal name, or missed by one that was not run at all because the client was in a hurry and the load was small.
That makes this an intake question more than a legal one, which is why it sits in the onboarding and risk domains of FRC’s 90-Day Operational Audit. The audit reviews six domains, collections, onboarding, risk, technology, staffing and financial reporting, and ends in a written assessment and a prioritized 12-month roadmap with no long-term commitment. The question it asks here is simple and uncomfortable: can you show, for every client on your book, what was searched and when.
FRC’s founder, Renee Williams, spent 25+ years inside factoring operations. We consult, advise and audit. We do not fund invoices, we do not give legal advice, and we will not tell you a search makes a competing claim impossible. What it does is make sure you knew about it before your money went out.