Under a field warehouse financing arrangement, a finance company segregates a portion of a borrower’s warehouse area with a fence. All inventory within the fence is collateral for a loan from the finance company to the borrower. The finance company will pay for more raw materials as they are needed, and is paid back directly from accounts receivable as soon as customer payments are received. If a strict inventory control system is in place, the finance company will also employ someone who records all additions to and withdrawals from the secured warehouse. If not, the borrower is required to frequently count all items within the secure area and report this information back to the finance company. If the level of inventory drops below the amount of the loan, the borrower must pay back the finance company the difference between the outstanding loan amount and the total inventory valuation. The company is also required under state lien laws to post signs around the secured area, stating that a lien is in place on its contents.
A field warehouse financing arrangement is expensive, given the extra effort required to continually keep track of the inventory collateral, and so is not the first financing option that a company will usually consider.