Using warehouse receipt finance, a bank, or trader, relies on goods in an independently controlled warehouse to secure financing. Usually providing (among many things) there is an off-taker and that there are other forms of recourse (the borrowers balance sheet for example) banks will lend against commodities stored in a reliable warehouse and which have been properly pledged to them in a sound legislative environment. So warehouse receipts provide for a degree of physical risk mitigation and, in support of an exchange-based trading system, they are important for underpinning futures.
Accordingly, warehouse operators can act as key influencers of risk management. If they are able to issue warehouse receipts, which can be used as collateral by banks, they may use this as a way of encouraging deliverers of commodities to move stocks into their facilities. Warehouse operators receive goods into the warehouse and issue ?receipts? showing the goods have been received into the store. Among other things, the receipts themselves contain information about the quality and type of the commodity taken into store. The receipts are for the information of the depositor of the goods or, if he is a borrower, for his bank. However, these receipts are not negotiable documents of title, i.e. the title to the goods themselves may not transfer from one to another person via the passing of the related warehouse receipt.
Herein lies the potential for some degree of confusion. The term ?warehouse receipt? means different things to different groups of people around the planet. For example, in the United States, the term ?warehouse receipt? is used for a document evidencing storage of a commodity in a warehouse. Unlike elsewhere, it is a document of title, supported by legislation; in this case the US Warehouse Receipts Act of 2000, which replaced a piece of legislation enacted in the US in 1916. By contrast, in the United Kingdom a warehouse receipt is a non-negotiable instrument simply notifying that at a certain moment in time a certain amount and quality of a commodity was delivered into a warehouse. In the UK, a negotiable form is represented by a warehouse ?warrant? of the type issued by London Metal Exchange-nominated warehouses.