What Is Warehouse Receipt?
A warehouse receipt is a document that verifies that certain products or commodities are being stored at a given moment in a facility that has been authorized to do so. On warehouse receipts, the categories of items, their quantities, and any other distinguishing features of the inventory are detailed.
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Source: Warehouse Receipt (wallstreetmojo.com)
A warehouse receipt is documentation used in the futures markets to verify that the proprietors of a warehouse have stored specific products. This document is called a warehouse receipt. The name of the person who owns a commodity, the quantity of the commodity housed in a warehouse, and the condition of the commodity at the time it was stored are all included on the receipt.
Table of contents
Key Takeaways
- A warehouse receipt is provided as evidence that specific products or commodities are held at an authorized facility at a specific period.
- In the futures markets, a warehouse receipt is a document to guarantee the quantity and quality of a commodity stored in a facility.
- The use of warehouses that the exchange has approved allows for a safe location for storing the actual commodity and managing the inventory.
- Documentation that the goods authorized for sale are ready to be transferred to a buyer is supplied to the exchange in the form of a warehouse receipt by the exchange.
Warehouse Receipt Explained
A warehouse receipt is an evidence that specified commodities are currently being held in a registered warehouse. When products are housed in a warehouse, a warehouse receipt records the commodities’ categories, quantities, and other pertinent details.
A piece of paper that contains an inventory of the items or commodities that have been put at a warehouse. This document is a receipt for stated goods, for which the warehouse acts as the bailee. Warehouse receipts can either be negotiated or not negotiated at the warehouse’s discretion.
A bearer instrument is something like a receipt that is made out to the “order” of a specific person. In the same way, ownership of the order bill of lading may be transferred by endorsing and then passing the papers from one party to another, ownership of the warehouse products can also be transferred in this way.
A receipt that does not contain the term “order” functions similarly to a non-negotiable bill of lading since it restricts delivery to the party mentioned on the receipt.
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Warehouse Receipt Financing
Growers, producers, and brokers of agricultural commodities can gain access to bank loans through a method known as warehouse receipt financing. This method involves using the warehouse receipts that have been issued against the items deposited in warehouses as collateral for the loans.
When a physical item is used as backing for a futures contract, a receipt is another step in the operational process that must be completed. For example, documentation indicating the products allowed for sale are present at the storehouse and ready to be transferred to a buyer can be sent to the exchange using a warehouse receipt.
The company liquidating its stock will enter into a futures contract to sell the goods at a predetermined price.
Warehouse receipts must be included when drafting a short (or sell) commodities futures contract. The receipt provides security to the organization that takes the long position (also known as the purchase position). At the time of the contract’s expiration, the entity holding the long position will be entitled to claim the commodity stock at the previously determined price.
Warehouse Receipt System
It is possible to enable credit for inventory or items held in storage using the warehouse receipts system, also known as the inventory credits system. When supported by legal requirements that ensure quality, these receipts are sometimes referred to as warrants. Thus it creates a safe framework whereby agricultural goods that have been stored can be purchased.
Agri commodities can be used as collateral, sold, exchanged, or delivered against financial products such as futures contracts. It can also be utilized to serve as delivery against financial instruments. These receipts declare the ownership of a particular number of items with particular qualities housed in a particular storage.
The following are some of the advantages that such a system of receipts offers:
- Facilitating the provision of finance to the agricultural sector through safe collateral for the farmer and the trader.
- Moderate market prices by encouraging sales at various points around the year instead of only immediately following harvests.
- Lowering the level of risk in agricultural markets and bolstering rural communities access to food and financial resources.
- Enhancing the purchasing power of small farmers by offering to choose when in the market cycle to sell their products.
- Contributing to greater transparency and standards within the storage business due to the increased need for regulation and inspection
- Assisting in establishing commodity markets, which boosts competition, knowledge of market conditions, and international trade.
These plans are not overly complicated and are available in two primary forms. However, a receipt with only one component is preferable in nations following Common Law, such as the United Kingdom and the United States. Still, in countries that follow Civil Law, two-part receipts are favored.
Examples
Let us look at the examples for a better understanding of the concept.
Example #1
Consider that a person named John Smith visits a rice farmer to place a huge order for rice. Unfortunately, the rice has not been harvested at this time. When the rice has been harvested and is ready to be sold, Smith can sign a contract with the farmer. That document specifies the price and amount of rice to be delivered.
Smith is the rice owner, and every time it is grown, it will be brought to his store. However, he will receive a receipt rather than having the rice delivered to his business. It will tell him where the rice is housed. Also, he will use this receipt to claim all or portion of the rice at the storage. After that, he will have the option of delivering the rice to his business. Throughout the entire procedure, the receipt from his warehouse acts as evidence of his ownership.
Example #2
Along with the Ghana Commodity Exchange (GCX), the International Finance Corporation (IFC) has introduced the warehouse receipt financing product with four savings and loan institutions, as reported by Ghana Business News.
The article also states how the Receipt System Project benefits smallholder farmers. They get to keep their products, get financing, and wait for the price of their products to increase before selling. In addition, the depositor can utilize the receipts to gain access to money. Once the approved plan is executed, it can be from any partnering financial firm.
Template
Following is the template of the warehouse receipt. One can edit the template by visiting the source site. It contains details like the date of receipt, name of storage house, address of storage house, charges, description of an item stored, and other relevant information.
Negotiable vs Non-Negotiable Warehouse Receipt
- A negotiable instrument is a document containing the right payoff of money or products to a person. Importantly it is possible to be transferred from one person to another. A non-negotiable instrument also states a right to pay money or products to an individual. Although, it cannot be transferred from one person to another. This right might be in favor of whoever has the document.
- Negotiable Receipts are fungible assets that may be bought, sold, exchanged, and even used as collateral to secure loans. The ability to trade, sell, swap, and utilize as collateral doesn’t come in a non-negotiable warehouse receipt.
Frequently Asked Questions (FAQs)
The warehouse receipt serves as the only confirmation that the products were received. A warehouse warrant is a warrant that is issued in the owner of the goods’ favor. The receipts of the warehouse are not transferred. The transfer of a warehouse warrant requires nothing more than approval and transfer.
Warehouse receipts can be negotiated. However, this is not always the case. The transfer of ownership of a commodity can be accomplished through a tradable warehouse receipt rather than the delivery of the product itself. The vast majority of warehouse receipts are provided in a manner that can be negotiated, which makes them suitable for use as collateral for loans.
Warehouse receipts are a valuable and successful technique for increasing liquidity and facilitating easier access to credit. These have many advantages, including the stabilization of the market’s supply and pricing, an increase in farmers’ earnings, and a reduction in the amount of wasted food.
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