In invoice financing, what generally happens to the invoices once they are sold or pledged?

In invoice financing, when businesses sell or pledge their invoices, the responsibility for collecting those invoices typically shifts to the lender. This means that once the invoices are sold or pledged, the lender now has the right to collect payments directly from the customers listed on those invoices. This process allows the business to receive immediate cash flow without having to wait for customers to pay their invoices.

The business may still retain some level of involvement, especially in terms of customer relations, but the lender assumes the primary responsibility for managing collections. This arrangement is beneficial for businesses needing immediate working capital, as it allows them to access funds more quickly than traditional loan methods.

The other choices do not accurately reflect the typical arrangement in invoice financing. Retaining ownership of the invoices by the business is incorrect, as it indicates that the lender would not have any rights or responsibility. Discarding the invoices contradicts the purpose of maintaining accounts receivable for cash flow. Notifying customers of the change in ownership can occur, but it is not a universal requirement in all invoice financing agreements. Therefore, the primary role of the lender in taking over the collections from the sold or pledged invoices is why this option is correct.