Field Examinations in Asset-Based Lending: A Borrower’s Preparation Guide

01

Understand why the lender ordered the examination

A field examination helps a lender evaluate the quality of collateral reporting, the reliability of the borrower’s systems and controls, and compliance with the eligibility rules used to calculate availability. It may occur before closing, after funding, at renewal, on a regular schedule, or when performance, reporting, management, systems, or collateral changes. Confirm whether the work is a collateral exam, inventory appraisal, audit, quality-of-earnings review, or another engagement; the labels, objectives, reliance, and procedures are not interchangeable.

02

Confirm scope, timing, access, and cost

Obtain the engagement scope or lender request list and identify the reporting date, locations, entities, collateral pools, sample periods, system access, expected fieldwork, delivery schedule, and borrower-paid fees. Determine who may receive the report and whether the examiner can contact customers, vendors, warehouses, processors, or insurers. Coordinate confidentiality, cybersecurity, privacy, site safety, and third-party access with qualified counsel and internal policy rather than sharing unrestricted credentials or sensitive records informally.

• Requested amount and use of proceeds
• Historical and current financial statements
• Complete debt and ownership schedules
• Collateral and transaction documentation

03

Freeze and reconcile the reporting-date package

Create one controlled data set for the selected date and preserve the general ledger, trial balance, receivables aging, inventory detail, payables aging, sales journal, cash receipts, credit memos, bank statements, borrowing-base certificate, and loan statement used for the examination. Reconcile the aging totals and inventory records to the general ledger, the certificate to the eligible-collateral calculation, and outstanding advances to lender statements. Document timing differences, foreign currency, intercompany balances, unapplied cash, and post-close entries.

04

Prepare receivables for eligibility testing

For accounts receivable, expect testing of invoices, purchase orders, contracts, shipping or service evidence, acceptance, payment history, credits, returns, disputes, offsets, retainage, contra accounts, and subsequent cash receipts. Identify balances that may be aged, cross-aged, foreign, affiliate, government, progress-billed, bonded, consigned, or concentrated. Do not remove exceptions from reports. Show gross balances, contractual exclusions, concentration calculations, advance rates, and reserves so the examiner can reproduce reported eligibility.

05

Prepare inventory records and physical controls

Reconcile inventory by item, location, ownership, status, and cost method. Separate raw materials, work in process, finished goods, goods in transit, consigned stock, customer-owned property, returns, damaged items, obsolete items, and inventory held by third parties. Preserve cycle counts and physical-count adjustments, bills of material, standard-cost variances, purchase records, sales history, and warehouse confirmations where applicable. Eligibility and value may differ from book cost, and an appraisal may apply different assumptions from the field exam.

06

Expect cash, payables, and dilution analysis

Fieldwork may trace cash receipts to invoices and bank deposits, review lockbox or dominion arrangements, test cutoff, and reconcile collections after the reporting date. Examiners may also review accounts payable, accrued expenses, payroll, taxes, customer deposits, returns, allowances, chargebacks, rebates, and bad-debt history because priority claims or dilution can affect collateral value. Prepare monthly trend schedules and explain unusual changes with source documents rather than relying on verbal summaries.

07

Demonstrate systems, controls, and segregation of duties

Document how orders become invoices, invoices become receivables, inventory moves between locations and statuses, credits are approved, cash is applied, and certificates are prepared and reviewed. Identify system interfaces, manual spreadsheets, user access, approval levels, change logs, backups, and reconciliations. Where a small team limits segregation, describe compensating review, dual approval, external bookkeeping, owner oversight, or other verifiable controls. The objective is a repeatable process, not a one-time clean-up for the visit.

08

Manage samples and examiner questions consistently

Assign one coordinator to the request list and maintain a dated log of items delivered, versions, open questions, and follow-ups. Provide complete files for sampled transactions and explain missing documents promptly. If a report changes, preserve the original, identify the correction, quantify its effect, and explain approval. Avoid coaching customers or vendors, backdating support, creating unsupported documents, or giving different explanations to different reviewers. Escalate legal, privacy, fraud, or contractual questions to qualified advisers.

09

Quantify findings before discussing remedies

A finding may lead to an eligibility exclusion, concentration limit, reserve, lower advance rate, more frequent reporting, process change, collateral control, principal paydown, or another lender response. Recalculate availability using the agreement’s definitions and model the effect on cash, purchasing, payroll, debt service, and covenant compliance. Separate confirmed errors from methodology differences and unresolved evidence. Propose a dated remediation plan with accountable owners, supporting records, validation steps, and enough liquidity for an adverse outcome.

010

Maintain continuous field-exam readiness

After the review, reconcile the final report to the lender’s decision and document each reserve, eligibility change, reporting requirement, deadline, and cure item. Update procedures, certificate templates, system permissions, training, and the compliance calendar. Retain an evidence index and repeat key reconciliations monthly so the next examination begins with controlled records. PFCS can help organize the financing package and coordinate information with third-party capital sources, but the lender, examiner, and qualified advisers determine collateral treatment, scope, findings, remedies, approval, and final terms.