In making loans secured by goods in a warehouse, the lender or supplier is relying upon the warehouseman to protect and to preserve the goods. The selection of a warehouseman of competence and integrity is critically important to the safety of the loan as is care in the selection of the types and quantities of goods that will be accepted as collateral. The lender must determine which organisation is most suitable to its needs and remember that the goods upon which he is relying on as collateral to his loan are “on deposit” in the warehouse just as much as his own customers funds are “on deposit” with him.

The warehouseman must be regarded therefore as a “goods banker”, whose responsibilities to the depositors of the goods are just as great as are the responsibilities of the “money banker” to his depositors.

The Warehouse Receipt, like the trust receipt and the factor’s lien may be looked at as a devise which came into being in the late nineteenth century and which was designed to make secured inventory financing possible. It is something which has managed to exist as a remarkable security devise (whether formally under statute or informally) for nearly a century before its discovery by the financing world as a means of using it as a financial instrument.

In a standard warehouse receipt financing arrangement there are three parties- the borrower, the lender and the warehouseman. The lenders who make use of this type of security are typically local commercial banks who do not have the expertise in dealing with either receivable or inventory, thus when the local bank makes a local loan on the security of the inventory (with or without the receivables) it is apt to call in the professional.

The core duties and the potential liabilities of such a professional collateral control company is primarily to act as a buffer between the borrower and the lender, and to be intimately involved in the financing transaction and by virtue of that involvement, know a great deal more about the client than an ordinary storage warehouseman would know. Such a company is therefore required to play a key role in reinforcing and protecting the security over the pledged goods as created by the lender.

The collateral control company therefore occupies a unique position in this industry which is riddled with risk. The link of such company to the actual business of storage ought to be merely incidental as it plays a key role in reinforcing and protecting the security over the pledged goods as created by the lender.