Goods as Collateral: Confirming the Stock Behind a Loan

A lender, a trade partner or a buyer agrees to accept goods as security. The paper says: "2,000 pallets of goods in warehouse X". Before money moves, someone should confirm that the goods exist, that they stand where the paper says and that the borrower is free to deal with them. A stock count answers a part of that question. Lawyers and the competent bodies answer the rest, and it is wise to keep the two parts apart.

What a count can show

• Existence: the goods are physically on site, and you have photographs with a date.
• Quantity and identity: how many units, of which items and batches, matched to the borrower's list.
• Condition: damaged, wet, opened, expired or visibly old goods.
• Separation: whether the goods stand in marked locations under the borrower's name or are mixed with other owners' goods.
• Signs of other claims on site: labels, tags or papers showing another owner, a hold or a different status.
• Control: who holds the keys, and whether goods can leave without the lender being told.

What a count cannot show

A count does not prove legal ownership. It cannot tell you whether the goods are already pledged elsewhere, whether a security agreement is valid, which registers apply, what rights the lender has if something goes wrong, or how customs treats the goods. These are questions for your lawyer and the competent authorities, and the rules differ by type of goods and transaction, so do not rely on a general article, ours included. A count gives the lawyer sound facts to work with; it does not replace the lawyer.

Agree what "verified" means

The most common cause of disappointment is a count whose result both sides read differently. Before the visit, write down with the lender and the borrower:

1. The cut-off date and hour, and whether the whole warehouse or only the pledged lines are in scope.
2. How goods of other owners, goods in transit and damaged goods will be shown.
3. The margin of difference that will be treated as acceptable, if any, stated in writing in advance.
4. What the report must contain: batch, expiry date, location, photographs.
5. That the counter reports quantities and condition, while valuation remains the lender's own decision.

Put this on one page and have both sides initial it. Arguments about what the count "should have" covered are far easier to settle when that page exists.

An example (conditional figures)

A loan application lists 2,000 pallets. The count finds 1,900 pallets on site. Of these, 1,640 are sound and carry the borrower's marks, 120 carry another company's labels, and 140 are damaged or wet. The report therefore shows: claimed 2,000, found 1,900, of which 1,640 sound and marked as the borrower's, 120 labelled for another company, 140 damaged, and 100 not found. The lender now has facts for each line, and the lawyer has two precise questions: who owns the 120 pallets, and what became of the 100. The lender can then decide whether to accept only the 1,640 sound pallets as security, or to require the other lines to be resolved before any funds are released.

Control of releases and repeat counts

Stock rotates, so the security changes from week to week, and a pledge over goods that can leave the door unobserved is weaker than it looks. Ask the lender and the borrower to settle, in writing and with the operator's knowledge, who may authorise a release, in what form (a written order from a named signatory), how each release is entered in a log and sent to the lender, and what minimum quantity must remain on site.

Agree on counts at intervals, spot checks after any large release, and a final count when the loan is repaid or the goods are sold. A count taken once at the start proves little about the position six months later. Between counts, ask for the operator's movement report and compare it with the borrower's figures; a gap between the two is a good reason to call for an unscheduled visit.

In short

When stock stands behind a loan, a count turns a line on paper into something that has been seen, photographed and dated. WarehouseDepo counts and documents what is physically there and reports it plainly, while the legal side stays with your lawyer.