Arid Financing

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Comptroller of the Currency Administrator of National Banks

Accounts Receivable and Inventory Financing

Comptroller’s Handbook

March 2000

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Assets

Accounts Receivable and Inventory Financing

Table of Contents

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Introduction Overview Risks of Accounts Receivable and Inventory Financing Credit Risk Rating Considerations Types of Accounts Receivable and Inventory Financing Accounts Receivable and Inventory Financing Structures Revolving Credit “Permanent” Working Capital Seasonal Operating Advances Over-advances Term Debt Evaluating the Borrower Assessing the Borrower’s Financial Position Assessing the Borrower’s Operating Cycle Assessing the Borrower’s Industry Assessing the Borrower’s Management Team Evaluating Collateral Accounts Receivable Inventory Underwriting ARIF Loans Collateral Controls in the Loan Agreement Documentation Financial Covenants Third-Party Guarantees or Insurance Pricing Administering ARIF Loans Disbursing Revolving Loan Advances Monitoring Systems Specialty Financing Arrangements Structured Finance Debtor-in-possession Financing Factoring Third-Party Vendors

Comptroller’s Handbook

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Accounts Receivable and Inventory Financing

Compliance Issues Debt Liquidation and Lender Liability State and Federal Laws, Rules, and Regulations Allowance for Loan and Lease Losses Examination Procedures General Procedures Quantity of Risk Quality of Risk Management Conclusions Appendixes A. ARIF Summary Chart B. Trade Cycle Analysis Worksheet C. Adverse Risk Rating Examples Glossary References

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Accounts Receivable and Inventory Financing

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Comptroller’s Handbook

Accounts Receivable and Inventory Financing

Introduction

This booklet describes the fundamentals of accounts receivable and inventory financing (ARIF). The booklet summarizes ARIF risks and discusses how a bank can prudently manage these risks. One...