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  • 10.10.1-RISK AND THE RELATION TO TRADE CREDIT-FUNCTIONS OF THE COLLATERAL MANAGER

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  • Functions of the collateral manager

     
     

    The collateral manager (CM) is an independent operator who 'manages' the collateral (the stocks) for a fee on the bank's behalf. The action that triggers the release of bank funds usually determines the stage at which the collateral manager enters the process. Depending on circumstances this may entail CM personnel supervising or managing the borrower's premises, or the storage of goods at public warehouses owned and managed by the CM. Usually the CM is engaged by the borrower and the bank jointly, with the fees paid by the borrower.

    To have true value for the banks the CM's obligations have to be guaranteed as well. This is usually done through appropriate liability and indemnity insurance, acceptable to the bank.

    Today's collateral managers offer a host of traditional and new services, for example:

    Verification of funding:

    • The funds are applied to the agreed purpose.
    • The timing and level of advances applied for is as agreed or is realistic.
    • The purchase price is as agreed or is realistic.


    Verification of borrower's and warehouseman's insurance arrangements:

    • Quality and scope of cover are acceptable.
    • Lending bank is named as loss payee (beneficiary).
    • Premiums are paid up to date.
    • Premises and goods are adequately described.


    Verification of premises:

    • The premises are secure, safe and fit for storage.


    Tally-in and weighing:

    • Bags received are counted.
    • Bags are weighed and stacked.


    Verification of quality:

    • The goods are what they are supposed to be.
    • Goods can be monitored from farm gate to ship's hold.


    Issue or certification of warehouse receipts:

    • Certifying receipt of the goods.
    • Providing proof of existence, which is collateral for funding.


    Stock administration and control:

    • Goods are properly accounted for.
    • Goods cannot be dispatched independently.
    • Goods are stored separately, they can be readily identified and no commingling is permitted at any time.


    Export process:

    • Supervision of export processing; quality control; goods match the
    • sales contract.
    • Goods are handed over against approved waybills, receipts or bills of
    • lading.
    • Waybills, receipts and bills of lading stipulate the bank as beneficial owner and are handled and dispatched correctly.


    The stage at which the CM leaves the process depends on the bank. The bank's back-office will have monitored the entire process and the CM's role often ends when the goods are handed over for shipment with the bank assuming title through the issue of bills of lading in the bank's name rather than the exporter's.