The Collateral Management Journey
Fifteen stages, three phases, one line of control from first enquiry to released goods. This example follows an import facility for tax and freight, held under a collateral management agreement with a partner bank.
Origination and Approval
Stages 1 to 5. The bank and VSM set the framework, screen the client and value the goods before the offer is signed.
- 01
Facility framework
VSM and the bank operate the facility under one collateral management framework that fixes each party’s role. VSM carries professional indemnity cover.
Who acts: VSMBank
- 02
Application
VSM assembles the client and shipping documents into one pack and lodges the facility application with the bank.
Who acts: VSM
- 03
Client screening
The bank screens the importer and consults VSM on the transaction. VSM accepts only non-perishable goods with a shelf life beyond six months.
Who acts: BankVSM
- 04
Bank appraisal
The bank authenticates the documents. Two values are set: the tax value from the URA assessment, and the market value, which VSM proposes.
Who acts: BankVSM
- 05
Offer and agreement
The bank issues the letter of offer, and all three parties sign the Collateral Management Agreement.
Who acts: BankClientVSM
Take-on and Custody
Stages 6 to 10. The goods clear customs into approved storage and VSM confirms its control with a stock certificate in the bank’s name.
- 06
Site readiness
The client prepares storage to the required standard. Where the premises are unsuitable, VSM places the goods with partner warehouse operators.
Who acts: VSMClient
- 07
Funding released
The bank pays URA direct on the tax route, and the appointed transporter direct on the freight route.
Who acts: Bank
- 08
Customs discharge
URA releases the goods from bond. VSM escorts the cargo to the agreed premises and issues a goods received note.
Who acts: URAVSMClearing agent
- 09
Stock certificate
VSM issues a stock certificate in the bank’s name stating the type, location, quantity and value of the goods under its control.
Who acts: VSM
- 10
Collateral cover
VSM holds goods worth three to five times the loan value plus bank charges for the life of the facility.
Who acts: VSM
Monitoring and Release
Stages 11 to 15. VSM watches the goods while the client repays, and releases them only on the bank’s order.
- 11
Stock surveillance
VSM secures the site, counts stock and reports positions to the bank. Goods sit under all-risk storage insurance with the bank as loss payee.
Who acts: VSM
- 12
Client repayment
The client repays into the bank account over the facility tenure, typically 90 to 120 days.
Who acts: Client
- 13
Cash control
The bank flags the client account and applies incoming funds to the loan balance.
Who acts: Bank
- 14
Release instruction
The bank issues a written release order on full settlement, or in tranches as funds arrive. Cover is recalculated on the stock that remains.
Who acts: Bank
- 15
Goods released
VSM releases the goods to the client against the bank’s order and closes the file.
Who acts: VSM
Goods traded on the USE Commodities Exchange follow a different route, secured by a pledge on an electronic warehouse receipt. See Commodity Exchange-Linked Financing.
What Protects the Lender
- Possession of the goods kept separate from title
- All-risk storage insurance with the bank as loss payee
- Continuous surveillance of the goods
- Repayments applied to the loan by the bank