What is the purpose of a Factor's Lien?

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A Factor's Lien is specifically designed to provide a financing arrangement for businesses that utilize factoring services. In this context, a Factor's Lien allows the factoring company to have a legal claim over the receivables owned by the business until the business settles its debts or obligations to the factoring company. This lien gives the factoring company the right to collect on the invoices of the business directly, ensuring that they can recover the money owed to them.

The nature of this arrangement means that if the business does not fulfill its payment obligations, the factor can take possession of the merchandise or the receivables to settle the debt. This arrangement is primarily focused on managing cash flow for businesses and providing immediate capital by securing the factor’s interest in the invoices.

Other choices, such as securing loans or assigning debts to collection agencies, do not specifically describe the function and intent of a Factor's Lien. The lien is not about loan security or collection agency processes but rather about establishing a secured claim on the receivables, facilitating the factoring process itself. Thus, the option that identifies providing rights to merchandise until payment best captures the essence of a Factor's Lien.

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