By taking possession of the warehouse receipt, the lender receives a security interest in the goods that allows him to control the inventory such that the receipt constitutes collateral for a loan. Only under the permission of the lender can the warehouse company release the stored goods to the borrower. Ensuring the lender supervision of the inventory, the law provides for the independence of the warehouse company and the company or individual that owns the goods.
The warehouse receipt only lists the goods and their lodging but does not guarantee quality, nor does it insure against hazards such as fire. There are two types of warehouse receipts: negotiable and non-negotiable. In the former, title to the goods can be negotiated by endorsement from one party to another, whereas the non-negotiable receipt underlying most lending arrangements authorizes only one party to release the goods.
A field warehouse company might establish a field warehouse on the borrower’s premises if the borrower wants to keep the inventory on his premises, the expense of transporting the goods is too high, or the goods are too bulky to be practicably transported. The inventory serving as collateral is physically segregated from the borrower’s other inventory and is strictly supervised by the field warehouse company. It issues a field warehouse receipt that the lender holds to secure a loan.