What are Trust Receipts?
A trust receipt is a notice from a banking organization indicating the transfer of goods to a customer while the banking organization retains control of the released properties. The bank retains ownership of the merchandise in a trust receipt agreement, but the buyer is permitted to keep the merchandise in trust for the bank for manufacturing or sales purposes. The bank retains ownership of the merchandise in a trust receipt agreement, but the buyer is permitted to keep the merchandise in trust for the bank for manufacturing or sales purposes. The trust receipt is a promissory note to the bank, stating that the loan sum will be repaid when the goods are sold.
The simplification regarding the operation of the Trust Receipts is described below for a better acknowledgement of them:-
A trust receipt is a financial document that is handled by a bank and a company that has purchased items but cannot pay for them before the inventory is sold. Other ventures and business activities could be tying up the company's cash flow and working capital in most cases.
Companies buy products for their inventories from retailers or wholesalers to resell to customers or to import goods in the usual course of business thereby operating through business accounts. These items can be bought locally or imported from other businesses. When these businesses obtain the products, the distributor or exporter bills them for the items they bought. If the company does not have enough cash on hand to pay the bill, it will be able to borrow money from a bank using a trust receipt.
The trust receipt is a promissory note to the bank, stating that the loan sum will be repaid when the goods are sold. The bank either pays the exporter or issues a letter of credit to the seller (or seller's bank) promising payment for the merchandise. The lender, on the other hand, keeps the title to the goods as collateral. The buyer or creditor is allowed to keep the goods separate from its other inventory and acts as a trustee for the bank in holding and selling the goods. Despite the fact that the bank retains a security interest in the goods under the general terms of a trust receipt, the customer retains ownership of the goods and is free to do whatever he wishes with them as long as he abides by the terms of his contract with the bank.