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Signing Up a Factoring Client: The Four DocumentsWhen a Factored Account Goes Unpaid: Recovery Steps33 West Monroe: Emalfarb Law Gets Receiver AppointedSigning Up a Factoring Client: The Four DocumentsWhen a Factored Account Goes Unpaid: Recovery Steps33 West Monroe: Emalfarb Law Gets Receiver Appointed

Commercial Finance

Factoring & UCC Attorney for Banks and Factors

We represent banks and factoring companies that purchase commercial receivables. We prepare and review the documents behind the purchase, and we pursue recovery when a seller defaults or an account debtor's payment does not discharge the assigned obligation.

(847) 432-6900

Last updated: October 2026

Legal Counsel for Banks and Factoring Companies

Emalfarb Law LLC represents banks and factoring companies that purchase commercial accounts receivable. A factor purchases a seller's invoices, takes an assignment of the right to payment, and collects from the seller's customers, known in the statute as account debtors. The arrangement works when each purchased invoice reflects real, accepted work and each payment reaches the factor. It fails when a seller diverts collections, submits invoices that do not reflect completed work, finances the same receivable twice, or closes with purchased accounts outstanding.

The firm's work in this area is closely tied to its construction collections practice. Many factored sellers are contractors, subcontractors, staffing firms, and service providers whose customers pay on long terms. The same discipline that governs a mechanic lien file applies here: identify each party that may be liable, document the right to payment precisely, act within the time the law allows, and prioritize the claims with the strongest liability and the best prospect of collection.

We organize the practice around four tools. Each has its own page with a fuller explanation: the UCC 9-406 notice of assignment, the factoring and security agreement, the personal guaranty, and collections and recovery when a program goes into default.

The Article 9 Framework for Commercial Factoring

Article 9 generally governs purchases of commercial accounts receivable as well as loans secured by them, subject to statutory exclusions and special rules for certain receivables. Illinois adopted it at 810 ILCS 5/9-101 et seq. Article 9 provides a broadly uniform framework across the states, but the governing state's enacted version, applicable amendments, and other laws must be reviewed. Five provisions do much of the work in an ordinary factoring relationship.

  • Scope, § 9-109(a)(3). A sale of accounts generally falls within Article 9. The purchaser is a secured party and the seller is a debtor for Article 9 purposes. Those classifications do not, by themselves, make a purchase a loan.
  • Attachment, § 9-203. The factor's interest attaches when value is given, the seller has rights in the accounts, and the statutory agreement requirement is met.
  • Perfection, §§ 9-310, 9-301, and 9-307. A factor ordinarily perfects its interest in purchased commercial accounts by filing an effective financing statement, generally in the state where a registered organization is organized. Exceptions apply to certain transactions and collateral types.
  • Discharge rule, § 9-406. After an account debtor receives an effective notification, a payment to the seller generally does not discharge the assigned obligation, subject to proof requests, defenses, and statutory exceptions.
  • Collection, § 9-607. If the agreement so provides, and in any event after default, the secured party may notify account debtors to pay it and may enforce their obligations. The factor must still establish each account debtor's liability.

These provisions are only as useful as the documents and records behind them. A financing statement filed in the wrong state, a notice that does not reasonably identify the rights assigned, missing evidence that a particular invoice was purchased, or a guaranty signed in the wrong capacity can each weaken an otherwise strong claim. This discussion concerns ordinary commercial accounts. Health-care-insurance receivables, controllable accounts, government receivables, and consumer obligations can be subject to different rules.

Documents We Prepare and Review at Onboarding

Many critical recovery rights, and much of the supporting evidence, are established when the seller is onboarded. We prepare or review the core documents with enforcement requirements in mind.

  • Factoring and security agreement, including purchase terms, reserves, the allocation of credit and performance risk, warranties, and events of default
  • Purchase records: offers, acceptances, schedules, and funding records showing which invoices were actually purchased
  • Notices of assignment to account debtors, with evidence of delivery and receipt
  • Personal guaranties from the principals the program relies on, signed in an individual capacity and supported by consideration
  • Organizational documents, resolutions or consents, and evidence of signer authority
  • A UCC-1 financing statement in the correct jurisdiction under the seller's exact name, with entity and lien searches identifying prior secured parties

Common Default Patterns

Factoring losses can arise from account debtor credit risk, disputes, invoices that do not reflect completed work, duplicate financing, and diverted collections. Recognizing the pattern early helps determine which claims to evaluate first and what evidence to secure.

  • Payments made to the seller after the account debtor received an effective notice of assignment
  • Changed remittance instructions, from the seller or from an impostor using a compromised email account
  • Invoices for work not performed or not accepted, or the same invoice financed by more than one funder
  • Payment holds by an account debtor that has received conflicting instructions
  • Closure or abandonment of the business with purchased accounts outstanding

Each pattern calls for a different response. A payment to the seller after effective notification generally does not discharge the assigned obligation under § 9-406(a). An invoice that does not reflect completed work may support warranty and guaranty claims against the seller and guarantors, depending on the agreement and the scope of each guaranty. A payment hold is often resolved by promptly furnishing reasonable proof of the assignment under § 9-406(c). Changed bank instructions should always be verified through a previously established telephone number or other trusted channel.

How a Factoring Default Matter Proceeds

When a bank or factor refers a default, we begin by checking bankruptcy status. A bankruptcy filing can stay collection against the debtor and acts involving estate property, so demands and enforcement wait until that review is complete. We then review the file: the factoring agreement, the purchase and funding records, the underlying contracts and performance evidence, the reserve and collections ledger, the payoff calculation, the notices of assignment and evidence of receipt, the UCC-1, and the guaranties. We run entity and lien searches where the seller and its principals operate.

From there, the matter may proceed on several tracks. The seller and each guarantor receive the notice and demand their documents require. Account debtors whose payments did not discharge the assigned obligation receive a documented demand. Account debtors with open purchased invoices receive a renewed direction to pay the factor. If demand does not resolve the matter, we evaluate suit against the parties with the strongest liability and the best prospect of collection, and enforcement of any resulting judgment.

The firm also handles the commercial side of a default: payment arrangements, the treatment of unfunded schedules, and settlement documentation that preserves the factor's rights if the arrangement is not honored. For contractors facing payment problems from the other side, see our contractor collections practice.

Our Factoring and UCC Services

Notice of Assignment (UCC 9-406)

Drafting and delivering the notice that redirects payment, and pursuing account debtors whose payments did not discharge the assigned obligation.

Factoring and Security Agreements

Purchase terms, risk allocation, warranties, events of default, attachment, and UCC-1 perfection in the correct state.

Personal Guaranties

Guaranties drafted with enforcement requirements in mind, notices and demands to guarantors, and suit within the guaranty's terms.

Collections and Recovery

Bankruptcy screening, demand, negotiation, litigation, and judgment enforcement against the parties that may be liable.

Factoring Articles From the Firm

Frequently Asked Questions About Factoring and UCC Matters

A factoring attorney supports the purchase of receivables at both ends of the relationship. At onboarding, counsel prepares or reviews the factoring and security agreement, the notices of assignment, the personal guaranties, the authority documents, and the UCC-1 financing statement, and confirms the seller's legal name and state of organization. When a program fails, counsel evaluates the claims that may be available against the seller, the guarantors, and account debtors, and pursues them. Article 9 of the Uniform Commercial Code, adopted in Illinois at 810 ILCS 5/9-101 et seq., generally governs purchases of commercial accounts and supplies many of the tools a factor relies on, subject to statutory exclusions and special rules for certain receivables. The practical consequence is that many critical recovery rights, and much of the supporting evidence, are established at onboarding, which is why the firm reviews both ends of the file.

Generally both. Under UCC § 9-109(a)(3), codified in Illinois at 810 ILCS 5/9-109(a)(3), Article 9 applies to a sale of accounts, chattel paper, payment intangibles, and promissory notes, subject to the exclusions in § 9-109(c) and (d), such as assignments for collection only and certain transfers in connection with the sale of a business. For Article 9 purposes, the purchaser is a secured party and the seller is a debtor under § 9-102(a)(28)(B) and (73)(D). Those classifications do not, by themselves, make a purchase a loan. The factor ordinarily perfects its interest in purchased commercial accounts by filing a financing statement under § 9-310, generally in the seller's state of organization. The practical consequence is that a factor that treats its program as a simple purchase contract outside Article 9 risks losing priority to a competing creditor or a bankruptcy trustee.

Potentially, the account debtor remains obligated to the factor. Under UCC § 9-406(a), adopted in Illinois at 810 ILCS 5/9-406(a), after receipt of a notification signed by the assignor or assignee that the amount due has been assigned and that payment is to be made to the assignee, the account debtor may discharge its obligation by paying the assignee and may not discharge it by paying the assignor. That rule is subject to requests for proof under § 9-406(c), the account debtor's underlying contract defenses under § 9-404, statutory exceptions, and applicable law. The factor must establish the assignment, effective notification and receipt, the underlying obligation, and the recoverable balance. The account debtor owes the assigned receivable, not the seller's entire buyout balance. The practical consequence is that a documented demand to a solvent account debtor can be an important potential source of recovery.

In many programs, yes. A factoring relationship depends on the seller's representations and conduct: that invoices reflect completed work, that collections received are handled as the agreement requires, and that the same invoice is not sold twice. A personal guaranty, sometimes written as a validity guaranty, can make a principal answerable within its terms for specified representations or conduct, while a payment guaranty may cover broader obligations. Under the Illinois Frauds Act, 740 ILCS 80/1, a promise to answer for the debt of another must be in writing and signed by the party to be charged or a lawfully authorized signer. The guaranty also needs consideration, which should be documented when it is obtained after funding. The practical consequence is that a principal who signs may be liable within the guaranty's terms, but scope, caps, triggers, and defenses control the result.

Thomas Emalfarb is licensed in Illinois. Factoring programs regularly involve a seller organized in one state, account debtors located in others, and a factor headquartered elsewhere. Illinois Rule of Professional Conduct 5.5(a) requires compliance with the regulation of the legal profession in the jurisdiction where legal services are provided. For matters requiring legal services in another jurisdiction, the firm evaluates applicable licensing and admission requirements and works with appropriately admitted local counsel where required. Article 9 provides a broadly uniform framework, but the governing state's enacted version, applicable amendments, and other laws must be reviewed in every multistate file. The practical consequence is that the factor can keep one firm coordinating the file while each jurisdiction's law and admission rules are respected.

Generally, no. The federal Fair Debt Collection Practices Act defines a debt at 15 U.S.C. § 1692a(5) as an obligation of a consumer arising from a transaction primarily for personal, family, or household purposes. Obligations arising from commercial transactions, such as a business account debtor's payment for commercial goods or services and a seller's obligations under a factoring agreement, generally fall outside that definition. The purpose of the underlying transaction controls, so an individual guarantor does not automatically turn a business obligation into a consumer debt. Other collection, licensing, communication, and misconduct rules may still apply, depending on the parties and the jurisdiction. The practical consequence is that demand letters on commercial factored accounts can be direct about the legal consequences of nonpayment, while still avoiding any misrepresentation and complying with the law that applies to the collection activity.

Refer a Default or Review a Program

Send us the factoring agreement, the purchase schedules and funding records, the underlying contracts and performance records, the notices of assignment and evidence of receipt, the UCC-1 and lien searches, the guaranties, the reserve and collections ledger, and the current payoff figure. We will review the file and identify the claims that may be available, against whom, and in what order.

Thomas Emalfarb is licensed in Illinois. For matters requiring legal services in another jurisdiction, the firm evaluates applicable licensing and admission requirements and works with appropriately admitted local counsel where required. This page is general information, not legal advice for any particular transaction.

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