A firm has borrowed $1 million and assigned its receivables to the lender. Because of defaults, the receivables prove insufficient to cover the debt. In this case, the:

Question

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When a firm assigns its receivables to a lender, it effectively transfers the ownership of those receivables to the lender. This means that if the receivables prove insufficient to cover the debt, the burden of the default falls on the firm, not the lender. The lender has already paid out the loan, and they are now left with non-performing receivables that they cannot use to recover their investment. Therefore, the firm bears the risk of default.

A Firm Has Borrowed $1 Million and Assigned Its Receivables