The short version
Switching factors is routine. Three things have to happen: your new factor buys out the invoices your current factor still holds, your current factor's UCC-1 financing statement is terminated, and your brokers receive a notice of assignment telling them to pay the new factor. Most of the work is done between the two factoring companies. What you control is the timing of your notice and, ideally, the exit terms you agreed to before you ever signed.
One caution about where most advice on this topic comes from: nearly every guide on switching is written by a factoring company that would like to be the one you switch to. Their descriptions of the mechanics are generally accurate. What they tend to skip is how much exit terms vary between companies, and that the cost of leaving is something to negotiate before you sign, not discover afterwards.
Step 1: Read your contract and give notice
Before you talk to anyone, find three things in your current agreement:
- The term and renewal date. Many agreements renew automatically at the end of each term.
- The notice window. RTS Financial's own switching guide says notice is typically due 30 to 60 days before the renewal date, and Apex Capital's guide gives the same 30 to 60 day range. Your contract may differ, so use its number, not theirs. A FreightWaves explainer on the cost of factoring warns that missing a narrow notice window can lock you in for another year.
- The early termination fee. If you leave before the term ends, expect a charge. FreightWaves cites early termination fees of 3% to 6% of the facility limit in some agreements. Others use a flat dollar amount or a formula based on your volume and the months remaining. Work out the number in dollars before you commit to leaving.
Give notice in writing, using the method your contract requires. Some agreements accept email; others require a signed letter by mail. Notice sent the wrong way may not count, and that can cost you another renewal cycle.
Step 2: The buyout
Your open invoices are already sold. Your current factor advanced money against them and is waiting for your brokers to pay. You cannot take those receivables with you, so the new factor buys them.
The new factor pays your old factor the amount it is owed on the open invoices, including any fees it is entitled to under the contract, and takes over collecting from your brokers. RTS notes that the old factor may add an early termination fee or other contractual charges to the buyout amount, which is one reason to know that fee before you start. You normally do not write a check yourself; the balance is settled against your future funding with the new factor.
The usual sequence:
- Your old factor agrees a buyout date and produces an aging report listing every open invoice.
- The new factor verifies those invoices, often by contacting the brokers.
- The parties sign a buyout agreement stating the amount owed.
- The new factor wires the funds and receives a release letter from the old factor.
The new factor may also charge you for handling the buyout. RTS puts its typical buyout fee at 1% to 1.5% of the total buyout amount; Apex says buyout fees are typically 1% to 2% of the invoices purchased. Ask whether the fee is capped, because a percentage of a large aging balance can be a meaningful number.
Step 3: Terminating the old UCC filing
When you signed with your current factor, it almost certainly filed a UCC-1 financing statement, normally with the filing office of the state where your business is organized, which is where the UCC treats a registered business as located (UCC 9-307). The filing is public notice that the factor has an interest in your accounts receivable. Article 9 of the Uniform Commercial Code covers outright sales of accounts as well as loans secured by them (UCC 9-109), and competing filed interests generally rank by who filed or perfected first (UCC 9-322). That is why a new factor will not fund you while another company's filing still covers your receivables.
The old filing is cleared with a UCC-3 termination statement. Once a termination statement is filed, the financing statement it relates to stops being effective (UCC 9-513). In a normal buyout the new factor handles this after its wire clears: both RTS and Apex describe the new factor terminating the old factor's filing and then filing its own.
If the old factor drags its feet, the law gives you leverage. Where an account debtor has paid the sold accounts or no obligation remains, a secured party must file or send a termination statement within 20 days after receiving an authenticated demand from the debtor (UCC 9-513(c)). Make that demand in writing and keep a copy.
A UCC-1 does not disappear on its own quickly. A filed financing statement stays effective for five years from the filing date unless it is terminated or continued (UCC 9-515). Most secretary of state offices let you search filings by debtor name online; the Kansas Secretary of State's UCC FAQ, for example, explains its official and unofficial debtor searches and confirms the five-year effective period. Search your own business name after the switch to confirm the old filing shows as terminated.
Step 4: The notice of assignment
Your brokers currently have instructions to pay your old factor. The new factor sends each of them a notice of assignment directing payment to it from now on, usually alongside the old factor's release letter.
The notice matters legally. Under UCC 9-406, once a customer receives notice of an assignment, paying anyone other than the assignee no longer discharges its debt. Your old factor's agreement will normally require it to forward any payments that arrive after the buyout, but misdirected payments still slow things down. Tell your regular brokers yourself that the change is coming, and forward anything that reaches you by mistake to the new factor immediately.
A realistic timeline
The buyout itself can be quick. Apex says buyouts can take one or two days, or up to a week. The notice period in your contract is usually the longer constraint. A workable plan:
| Stage | What happens | What you do |
|---|---|---|
| Before notice | Get a written offer from the new factor that includes buyout terms | Read your termination clause and price the exit |
| Notice | Written notice delivered by the contract's required method | Keep proof of delivery |
| Buyout | Aging report, invoice verification, buyout agreement | Answer verification questions quickly |
| Funding and UCC | Wire to old factor, release letter, UCC-3 filed, new UCC-1 filed | Search the state UCC records to confirm |
| Settling | Brokers receive notice of assignment; stray payments forwarded; reserves released | Watch for payments still going to the old factor |
Funding can be uneven while invoices are being verified. Do not let fuel or payroll depend on the changeover going perfectly; keep a cash cushion until the first few loads fund cleanly with the new factor.
Five things to check before you sign the next contract
If you are leaving because the first contract was wrong, the goal is not to repeat it.
- Term and notice period. A short term with a short notice window is worth something, even at a slightly higher rate.
- The early termination fee, in dollars. Ask for the number, not just the formula.
- When the UCC is filed and what it covers. Ask whether it covers only receivables or all business assets.
- What happens to your reserve if you leave. How long it is held and what conditions release it.
- Whether the buyout fee is capped. Both the fee to come in and any fee to leave later.
Get all five in writing. A factor willing to put its exit terms on paper is generally one that expects to keep you by doing a good job rather than by making leaving expensive. Our guide to reading a factoring contract covers the rest of the agreement, and the recourse vs. non-recourse guide explains the coverage clause to check before you sign again.
Long terms are not automatically bad. They often come with lower rates, and that can be a fair trade if you understand it going in. Compare the companies you are considering on the companies directory, and see what a new rate would mean per load with the factoring calculator.
Frequently asked questions
Can I switch factoring companies mid-contract?
Yes, but you may owe an early termination fee, and the old factor can add it to the buyout amount. Some agreements calculate it as a percentage of the facility limit; FreightWaves cites 3% to 6% in some contracts. Check your termination clause before giving notice so you know the cost in advance.
What is a factoring buyout?
A buyout is when your new factoring company purchases your open invoices from your current one, paying what the old factor is owed on them, and then collects from your brokers. The new factor may charge a buyout fee; RTS and Apex publish typical ranges of 1% to 1.5% and 1% to 2% respectively.
How long does it take to switch factoring companies?
The buyout itself can take as little as a day or two, according to Apex, though verification and paperwork can stretch it to a week or more. The notice period in your contract is usually what sets the overall timeline, so start by finding that date.
Do I have to pay off my old factoring company myself?
Usually not. The new factor pays the old one directly as part of the buyout, and the balance is recovered from your future funding rather than out of pocket.
What is a UCC-1 filing in factoring?
It is a public financing statement filed with the state that records your factor's interest in your accounts receivable. It is standard in factoring. A new factor will want it terminated with a UCC-3 before it funds you, because filed interests generally rank by who filed first.
What if my old factor will not release the UCC filing?
Send a written demand. Once the obligation is satisfied, the UCC requires the secured party to file or send a termination statement within 20 days after receiving an authenticated demand from the debtor (UCC 9-513). Keep a copy of the demand and the buyout payoff confirmation.
Does a UCC filing show up on my personal credit report?
A UCC financing statement is a public record filed against the business, and lenders search for it before they extend credit. That is why a terminated filing that still shows as active can hold up a new factor or lender, and why it is worth confirming the termination in your state's UCC search after you switch.