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ACCOUNT RECEIVABLE AND INVENTORY MANAGEMENT

ACCOUNT RECEIVABLE MANAGEMENT


- Accounts receivable consists of money owed to a firm for goods and services sold on credit.
- Two Forms:
1. Trade or Commercial Credit: credit which the firm extends to other firms.
2. Consumer or Retain Credit: credit which the firm extents to its final customers.
- OBJECTIVES: to ensure that the firm’s investment in account receivable is appropriate and contributes to shareholder wealth
maximization.
- Finance Officer responsibility: evaluate the pertinent costs and benefits related to credit extension, to finance the firm’s investment in
accounts receivable, implement the firm’s credit policy and enforce collection.
- CREDIT POLICY is the set of guidelines for extending credit to customers.
o Major controllable variables which affect demand are sales prices, product quality, advertising and the firm’s credit policy.
o Variables it covers:
1) Credit Standards is the minimum financial strength of acceptable credit customer and the amount available to
different customer.
 If credit policy is relaxed, while sales may increase, the quality of accounts receivable may suffer. This may
result into longer average collection period.
 An Optimal Credit Policy would involve extending trade credit more liberally until the marginal profitability
on additional sales equals the required return on the additional investment in receivables.
o it is the trade-off between the profits on sales that give rise to receivables on hand and the cost of
carrying these receivables plus bad debt losses on the other hand.
 Setting credit standards implicitly requires a measurement of credit quality, which is defined in terms of the
probability of a customer’s default.
 AREAS BEING EVALUATED TO MEASURE CREDIT QUALITY & CUSTOMER’S CREDIT
a. Character the probability that the customers will pay their debts or obligations.
b. Capacity the judgment of customer’s ability to pay. It is determined in part by the customer’s past
records and business methods.
c. Capital measure by the general financial condition of a firm as indicated by an analysis of its
financial statements.
d. Collateral is represented by assets that customers may offer as security in order to obtain credit.
e. Conditions refer both to general economic trends and to special developments in certain
geographic regions or sectors of the economy that might affect customer’s abilities to meet their
obligations.
2) Credit Terms involve both the length of the credit period and the discount given.
 Credit Period is the length of time buyers are given to pay for their purchases.
 Discounts are price reductions for early payment. The discount specifies what the percentage reduction is and
when the payment must be made to be eligible for the discount.
3) Collection Policy refer to the procedures the firm follows to collect past-due accounts.
 Credit Analysis is instrumental in determining the amount of credit risk to be accepted.
4) Delinquency and Default, whatever credit policies a business may adopt, there will be some customers who will delay
and other who will default entirely, thereby increasing the total account receivable costs.
- Cost Associated with Investment in Accounts Receivable
1. Credit Analysis, accounting and collection costs: if the firm is extending credit in anticipation of attracting more business, it
incurs the cost of hiring the credit manager plus assistants and bookkeepers within the finance department; of acquiring credit
information sources and of generally maintaining and operating a credit and collection department.
2. Capital Costs one the firm extends credit, it must raise funds in order to finance it. The interest to be paid if the funds are
borrowed or the opportunity cost of equity capital will constitute the cost of funds that will be tied up in the receivables.
3. Delinquency Costs these costs are incurred when the customer is late in paying. This delay adds collection costs above those
associated with a normal collection.
 Delinquency also creates an opportunity cost for any additional time the funds are tied up after the normal
collection period.
4. Default Cost (Bad debts) the firm incurs default cost when the customer fails to pay at all.
 In addition to collection costs, capital costs and delinquency costs incurred up to this point, the firm losses the
cost of goods sold not paid for.
 It has to write off the entire sales once it decides the delinquent account has defaulted and is no longer
collectible.
- Summary of Trade-offs in Credit and Collection Policies
1. Relaxation of Credit Standards:
 Benefit: increase in sales and total contribution margin.
 Cost: Increase in credit processing, Increase in collection costs, higher default cost (bad debts), and higher capital costs
(opportunity costs)
2. Lengthening of Credit Period
 Benefit: increase in sales and total contribution margin
 Cost: Higher capital costs (opportunity cost of higher investment in receivables)
3. Granting Cash Discount
 Benefit: increase in sales and total contribution margin, and opportunity income on lower investment in receivable.
 Cost: Lesser Profit
4. Intensified Collection Efforts
 Benefits: lower default costs (bad debts), and Lower opportunity cost or capital costs
 Cost: Higher collection expenses and lower sales
- Additional investment in accounts receivable will increase carrying costs and bad debts and/or discount expenses may also rise.
- MARGINAL ANALYSIS is performed in terms of a systematic comparison of the incremental returns and the incremental costs resulting
from a change in the firm’s credit policy.
o Whenever the incremental or profit from a proposed change in the management of accounts receivable exceeds the required
return or incremental costs of the additional investment, the change should be implemented.
o All things being equal, the decision concerning the change in credit policy is made using the following rules:
 If:
i. Incremental Profit contribution > incremental Cost: then accept the change in credit policy
ii. Incremental Profit contribution < incremental Cost: then reject the change in credit policy
iii. Incremental Profit contribution = incremental Cost: then be indifferent to the change in credit policy
INVENTORY MANAGEMENT
- Inventories are an essential part of virtually all business operations and must be acquired ahead of sales.
- Main Classifications:
o Manufacturing: Raw Materials, Goods in Process, Finished goods, Factory Supplies
o Trading Firms: Merchandise
- The necessity of forecasting sales before establishing target inventory levels makes inventory management a difficult task.
- OBJECTIVE: it is the responsibility of the financial officers to maintain a sufficient amount of inventory to insure the smooth operation of
the firm’s production and marketing functions and at the same time avoid tying up funds in excessive and slow-moving inventory.
- Inventories may be considered as the life-blood of the production – distribution system.
- FUNCTIONS AND USES OF INVENTORIES
1. Pipeline or Transit Inventories: inventories which are being moved or transported from one location to another and they fill the
supply pipelines between stages of the entire production-distribution system.
2. Organization or Decoupling Inventories: these are inventories that are maintained to provide each link in the production-
distribution chain a certain degree of independence from the others. These will also take care of random fluctuations in demand
and/or supply.
3. Seasonal or Anticipation Stock: these are built up in anticipation of the heavy selling season or in anticipation of price increase
or as part of promotional sales campaign.
4. Batch or Lot-Size Inventories: these are inventories that are maintained whenever the user makes or buys materials in larger
lots than are needed for his immediate purpose.
5. Safety or Buffer Stock: these inventories are maintained to protect the company from uncertainties such as unexpected customer
demand, delays in delivery or goods ordered, etc.
- To provide the inventories required to sustain operations at the lowest possible cost, it is necessary to identify all the costs involved in
acquiring and maintaining inventory.
- COST ASSOCIATED WITH INVESTMENT IN INVENTORY
1. Carrying Costs: Cost of capital tied up in inventory, Storage and handling cost, Insurance, Property taxes, Depreciation and
Obsolescence, and Administrative costs.
2. Ordering, Shipping and Receiving Cost: cost of placing orders including production and setup cost, shipping and handling cost.
3. Cost of running short: loss of sales, loss of customer goodwill, and description of production schedules.
- INVENTORY MANAGEMENT TECHNIQUES
I. Inventory Planning
 Involves the determination of what inventory quality, quantity, timing and location should be in order to meet future
business requirements.
 EOQ model and Reorder Point are approaches and mathematical techniques that may be used in determining order size,
timing, etc.
𝟐 𝒙 𝑨𝒏𝒏𝒖𝒂𝒍 𝑫𝒆𝒎𝒂𝒏𝒅 𝒊𝒏 𝑼𝒏𝒊𝒕𝒔 𝒙 𝑪𝒐𝒔𝒕 𝒑𝒆𝒓 𝒐𝒓𝒅𝒆𝒓
 Economic Order Quantity (EOQ) = √
𝒄𝒂𝒓𝒓𝒚𝒊𝒏𝒈 𝒄𝒐𝒔𝒕𝒔 𝒑𝒆𝒓 𝒖𝒏𝒊𝒕
 Total Inventory Costs = Total Ordering Costs + Total Carrying Costs
𝑨𝒏𝒏𝒖𝒂𝒍 𝒅𝒆𝒎𝒂𝒏𝒅 𝒊𝒏 𝒖𝒏𝒊𝒕𝒔
 Total Ordering Costs = x Ordering Cost per order
𝑬𝑶𝑸 𝒐𝒓 𝒐𝒓𝒅𝒆𝒓 𝒔𝒊𝒛𝒆
 Total Carrying Costs = Average inventory + Carrying Cost per Unit
EOQ or Order Size
 Average Inventory =
2
II. Reorder Point = Lead time usage + Safety Stock
- INVENTORY CONTROL is the regulation of inventory within predetermined limits.
o Effective inventory management should provide adequate stocks to meet the requirements of the business, while at the same time
keeping required investment to a minimum.
- INVENTORY CONTROL SYSTEMS
1. Fixed Order Quantity System wherein each time the inventory goes down to a predetermined level known as the reorder point,
an order for a fixed quantity is place
 This requires the use of perpetual inventory records or the continuous monitoring of the inventory level.
 Example: Two-bin system under which reorder is placed when the contents of the first bin are used up.
 Another approach sued in determining the reorder point is by adding the average demand during lead time and buffer
stock.
2. Fixed Reorder Cycle System also known as the periodic view or the replacement system where orders are made after a review
of inventory levels has been done at regular intervals.
 An order is placed if at the time of the review the inventory level had gone down since the preceding review.
 The quantity ordered under this system is variable depending on usage or demand during the review period.
 Replenishment level: FORMULA --- M = B + D (R + L)
Wherein: M = Replenishment level in units
B = Buffer stock in units
D = Average demand per day
R = Time interval in days, between reviews
L = Lead time in days
3. Optional Replenishment System represents a combination of the important control mechanisms of the other two systems
describe above.
 Replenishment Level FORMULA: P = B + D (L + R/2)
Wherein: P = Reorder point in units
B = Buffer stock in units
D = Average daily demand in units
R = Time between review in days
L = Lead time in days

4. ABC Classification System segregation of materials for selective control is made.


 Inventories are classified into “A” or high value items, “B” or medium cost items and “C” or low cost items.
 A Items – highest possible controls, including most complete, accurate records, regular review by top supervisor,
blanket orders with frequent deliveries from vendor, close follow-up through the factory deliveries from vendor, close
follow-up through the factory to reduce lead time, etc.
o Careful accurate determination of order quantities and order point with frequent review to reduce, if possible.
 B Items – normal controls involving good records and regular attentions; good analysis for EOQ and order point but
reviewed quarterly only or when major changes occur.
 C Items – simplest possible controls such as periodic review of physical inventory with no records or only the simplest
notations that replenishment stocks have been ordered; no EOQ or order point calculations.
SHORT TERM FINANCING
- Refers to debt originally scheduled for repayment within one year.
- Used to finance all or part of the firm’s working capital requirements and sometimes to meet permanent financing needs.
- Often less expensive and more flexible than longer term financing.
- TWO BASIC PROBLEMS:
1. Determining the level of short term financing the firm should use
2. Selecting the source of short term financing
- FACTORS IN SELECTING A SOURCE OF SHORT TERM FUNDS
1. The effective cost of credit
2. The availability of credit in the amount needed and for the period of time when financing is required
3. The influence of the use of a particular credit source on the cost and availability of other sources of financing, and
4. Any additional covenants of the loans that are unique to the sources mentioned previously.
- ESTIMATING COST OF SHORT TERM CREDIT
1. Accruals are current liabilities for services received but for which complete payments have not been made as of the reporting
date.
 Include wages, taxes, rent and interest payable.
 Interest free sources of financing and do not involve either implicit or explicit costs.
 Firms can alter the amount of accrued wages by changing the frequency of wage payments, but they have less control
over the accruals.
 FORMULA:
Change in Ave. Accrued Wages = Net Ave. Accrued Wages – Current Ave. Accrued Wages\
Savings changing the payroll period = Opportunity cost x Change in Accrued Wages
2. Cost of Trade Credit. Credit received during the discount period is sometimes called free trade credit.
 The view that trade credit is free may be misleading. These are costs associated with trade credit, but they are not as
obvious as costs of other forms of financing, such as interest charges.
o Implicit/Hidden Costs. Suppliers of trade credit incur the costs of operating a credit department and financing
account receivables. They pass these cost on to buyers in the price of the product or service.
 This is determinable if the cash price is known
o Opportunity Cost/missed cash discount. Trade credit does not have explicit cost if there is no discount
offered or if the buyer pays the invoice during the discount period.
 If the term of sale include a discount and the discount is not taken, an opportunity cost is incurred
because the buyer forgoes an opportunity to pay less for the purchases.
 FORMULA:
Discount Percent 360 days
Nominal Annual Cost (ANC) = x
100−discount percent Days credit is outstanding−discount period
3. Cost of Bank Loans
 Simple Interest – in a single interest loan, the borrower receives the face value of the loan and repays the principal and
interest at maturity date.
𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡
o Effective Annual Rate simple =
𝐹𝑎𝑐𝑒 𝑉𝑎𝑙𝑢𝑒
 Discount Interest loan, the bank deducts the interest in advance or discounts the loan.
𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡
o Effective Annual Rate discount =
𝐹𝑎𝑐𝑒 𝑉𝑎𝑙𝑢𝑒−𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡
 Add-on Interest is interest that is calculated and added to funds received to determine the face amount of an
installment loan.
𝟐 (𝒂𝒏𝒏𝒖𝒂𝒍 𝑵𝒐.𝒐𝒇 𝒑𝒂𝒚𝒎𝒆𝒏𝒕𝒔)(𝑰𝒏𝒕𝒆𝒓𝒆𝒔𝒕)
o Approximate Annual Rate = (𝑻𝒐𝒕𝒂𝒍 𝑵𝒐.𝒐𝒇 𝑷𝒂𝒚𝒎𝒆𝒏𝒕𝒔+𝟏)(𝑷𝒓𝒊𝒏𝒄𝒊𝒑𝒂𝒍)
o The effective annual rate may be computed using the procedure in getting internal rate of return or effective
yield.
 Simple Interest with Compensating Balance is the minimum account balance that a lending bank requires the
borrower to maintain.
o Its effect is to raise the effective interest rate on a loan because the net withdrawable amount is reduce.
𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝑅𝑎𝑡𝑒 (%)
o Effective Annual Rate simple/CB = or
𝐹𝑎𝑐𝑒 𝑉𝑎𝑙𝑢𝑒−𝐶𝑜𝑚𝑝𝑒𝑛𝑠𝑎𝑡𝑖𝑛𝑔 𝐵𝑎𝑙𝑎𝑛𝑐𝑒 1.0−𝐶𝑜𝑚𝑝𝑒𝑛𝑠𝑎𝑡𝑖𝑛𝑔 𝐵𝑎𝑙𝑎𝑛𝑐𝑒 %
 Discount Interest with Compensating Balance
𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡
o Effective Annual Rate = or
𝐹𝑎𝑐𝑒 𝑉𝑎𝑙𝑢𝑒−𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡−𝐶𝑜𝑚𝑝𝑒𝑛𝑠𝑎𝑡𝑖𝑛𝑔 𝐵𝑎𝑙𝑎𝑛𝑐𝑒
𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝑅𝑎𝑡𝑒 (%)
1.0−𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑟𝑎𝑡𝑒− 𝐶𝑜𝑚𝑝𝑒𝑛𝑠𝑎𝑡𝑖𝑛𝑔 𝐵𝑎𝑙𝑎𝑛𝑐𝑒 %
4. Cost of Commercial Paper
𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡+𝐼𝑠𝑠𝑢𝑒 𝐶𝑜𝑠𝑡 1
 Effective Annual Rate discount = x 𝐷𝑎𝑦𝑠 𝑜𝑓 𝑀𝑎𝑡𝑢𝑟𝑖𝑡𝑦
𝐹𝑎𝑐𝑒 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑡ℎ𝑒 𝑁𝑜𝑡𝑒−𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡−𝐼𝑠𝑠𝑢𝑒 𝐶𝑜𝑠𝑡𝑠
360 𝐷𝑎𝑦𝑠
- SOURCES OF SHORT TERM FUNDS
1. Unsecured Credit include all those sources that have as their security only the lender’s faith in the ability of the borrower to
repay funds wen due.
 Unsecured short term financing is an obligation without specific assets pledged as collateral.
 Collateral is the asset that the borrower pledges to a lender until a loan is repaid.
 The stronger the firm’s overall credit rating, the more likely it will borrow on an unsecured basis.
 More risky to lenders, but provide maximum flexibility to borrowers and are less costly to administer than secured
loans.
 The lender depends on the cash-generating ability of the firm to repay the debt.
 If the borrower defaults on the loan or goes into bankruptcy, the unsecured lender’s change of receiving full or partial
payment is diminished because secured creditors have a prior claim to the firm’s assets.
 Major Sources: Accruals, trade credit, bank loans, commercial papers, business firms and individuals.
o ACCRUALS: as the firm’s sales increase, so does its labor expense, VAT taxes, income taxes, and so on.
 the longer the period of time that the firm holds these payments, the greater the amount of financing
they provide.
 These source of financing arise spontaneously with the firm’s sales.
 These accrued expense items provide the firm with automatic or spontaneous sources of financing.
o TRADE CREDIT provides one the most flexible sources of financing available to the firm.
 Primary source of spontaneous financing because it arises from ordinary business transactions.
 Major Advantage: lies in its rather quick availability.
 During periods of tight money, trade credit may be the only source of working capital for
many small companies.
 the relatively high cost of trade credit makes it a less desirable source of short term financing when
compares to other alternatives.
 Chronic reliance on trade credit may impair the credit rating of the user firm in the long run due to
its greater impact on the liquidity risk of the business.
o SHORT TERM BANK LOANS, commercial banks are second in importance to trade credit as a source of
short term financing.
 Banks provide nonspontaneous funds.
 A firm’s financing needs increase, it request additional funds from its bank. If the request is denied,
the firm may be forced to abandon attractive business opportunities.
 Commercial Bank Loan that is for a specific purpose, short-term and self-liquidating.
 Cash flow forecast showing repayment ability are of prime importance.
 When a bank loan is approved, the agreement is executed by signing a promissory note. The note
specifies the amount borrowed, percentage interest rate, repayment schedule, any collateral that
might have to be put up as security for the loan, and any other terms and conditions to which the
bank and the borrower may have agreed.
o LINE OF CREDIT, if the firm does not which to borrow until the working capital is actually requires, it
may arrange a credit arrangement with a large commercial bank.
 Line of Credit which is generally an informal arrangement in which a bank agrees to lend up to a
specified maximum amount of funds during a designated period.
 Interest is charged on the amount actually borrowed and a fee may be charged by the
bank on the remaining line-of-credit not in service.
 Revolving Credit Agreement which is legal commitment by the bank to extend credit up to some
maximum amount for a few months or several years.
 A formal line of credit often used by large firms wo pay an annual commitment of about
¼ of 1% on the unused balance to compensate the banks for making the commitment.
 As drawdowns are made, interest as the loan is charged which is usually pegged to the
prime rate.
 As payment are made on the loan, the credit line is restored back to the original
maximum amount.
 Distinguishing Feature: bank has a legal obligation to honor the agreement and it
receives a commitment fee.
o COMMERCIAL PAPER is an unsecured short term promissory note sold in the money market by highly
credit-worthy firms.
 Approval of the SEC is necessary before such promissory notes can be issued.
 Big firms used commercial paper to finance their working capital because it is much less expensive
than the cost of trade credit.
 Other companies buy the commercial paper as part of their near-cash holdings for cash
management purposes.
 Costs are lower than most bank loans and are not subject to the possibly restrictive covenants
contained in many bank loans.
 Disadvantages:
 The fixed maturity date which raises the liquidity risk and
 Its lack of user availability excepts for very large firms
2. Secured Loans involve the pledge of specific assets as collateral in the event the borrower defaults in payment of principal or
interest.
 Accounts Receivables and inventory are the most common sources of collateral for short-term financing.
 If the borrower defaults, the lender has the legal right to seize the collateral and sell it to pay off the loan.
3. Spontaneous Source / Spontaneous Short Term Financing are sources that arise automatically from ordinary business
transaction.
 Do not require special effort or negotiation on the part of the finance officer.
 Spontaneously generated funds will be provided by accounts payable and accruals.
 Higher level of operations will require more labor while higher sales will result in a higher taxable income.
 The spontaneous liability accounts payable will follow the movement of sales.
4. Nonspontaneous negotiated or short-term financing are sources that require special effort or negotiation.
 Major Sources: Bank loans, commercial paper and accounts receivable/inventory loan
- SHORT TERM FINANCING IS OBTAINABLE THROUGH
1. Pledging or Assignment of Accounts Receivable
 Accounts receivables are considered by many lenders to be prime collateral for a secured loan.
 Under pledging arrangement the borrower simply pledges or assigns accounts receivable as security for a loan obtained
from either a commercial bank or a finance company.
 The amount of loan is stated at a percent of the face value of the receivables pledge.
 If all the A/R are pledged as collateral for the loan and the lender has no control over the quality of the A/R being
pledged, the loanable value is set at a relative low percent generally ranging downward from a maximum of around
75%.
 If the lender could select and assess the creditworthiness of each individual account being pledged, the loan value
might reach as high as 85% or 90% of the face value.
 Cost of Financing Disadvantage: relatively high cost owing to the interest rate charged on loans which is 2% to 5%
higher than the bank’s prime rate and processing or handling fee of about 1% to 2% on pledged accounts.
 Primary Advantage of Pledging: its FLEXIBILITY. Financing is available on a continuous basis because as new
account arise out of credit sales, additional collateral is provided for the financing of new production.
 Primary Disadvantage of Pledging: it’s COST, which can be relatively higher compared with other sources of short
term credit.
2. Factoring of Accounts Receivable
 Involves the outright sales of the firm’s accounts receivable to the finance company.
 The customer may be instructed to remit the proceeds directly to the purchases of the account.
 Generally does not have recourse against the seller of the receivables.
 The factoring or finance company forwards funds immediately to the seller when accounts are accepted.
 Factoring company not only absorbs the risk of non-collection but also advances the funds to the seller a month or so
earlier than the seller would normally receive them.
 Cost of Financing:
o The factoring firm is generally charge a fee or commission ranging from 1% to 3% of the invoices accepted.
o It charges interest on funds advanced to the seller of the accounts.
 The factor does not make payment for factored accounts until the accounts have been collected as the credit terms have
been met. Should the firm wish to receive immediate payment for its factored accounts, it can borrow from the factor,
using the factored accounts as collateral.
o The maximum loan the firm can obtain is equal to the face value of its factored account less the factor’s fee
(1% to 3%) less a reserve (6% to 10%) less the interest on the loan.
3. Inventory Financing the extent that may be employed is based on the marketability of the pledged goods, their associated price
stability, and the perishability of the product.
 Work in process inventory however provide very poor collateral because of their lack of materiality.
 Typical Arrangements by which Inventory can be used to secure short-term financing are:
a) Blanket Inventory Lien. This gives the lender general lien or claim against the inventory of the borrower.
 The borrowing maintains full control of the inventories and continues to sell and replace them as it
sees fit.
 Lack of physical control over the collateral greatly reduces the value of this type of security to the
lender.
b) Trust Receipts / Chattel Mortgage Arrangement. A TRUST RECEIPT is an instrument acknowledging that
the borrower holds the inventory and proceeds from sales in trust for the lender.
 Each item is carefully marked and specified by serial number when sold, the proceeds are
transferred to the lender and the trust receipt is canceled.
 Although it provides tighter control than does the blanket inventory lien, is still does not give the
lender direct control over inventory – only a better and more legally enforceable system of tracing
the goods.
 Very popular among auto and industrial equipment lenders, television and house appliance
industry.
c) Warehousing. Goods are physically identified, segregated and stored under the direction of an independent
warehousing company.
 Warehousing firm issues a warehouse receipt for the merchandise which carries title to the goods
represented therein.
 The receipt may be negotiated in which case title can be transferred through sale of the warehouse
receipt or non-negotiable whereby title remains with the lender.
 With non-negotiable arrangement the warehouse firm will only release the goods to whoever holds
the receipt, whereas with non-negotiable receipt the goods may be released only on the written
consent of the lender.