Trust Receipt

Summary of Trust Receipt

An instrument in which a borrower pledges certain specific goods as collateral for a loan. The trust receipt certifies that the named goods are held in trust for the creditor or are segregated in the borrower's premises on behalf of the lender. Proceeds from the sale of the pledged goods are immediately due to the lender. One defect of trust receipts is that the instrument applies only to specific merchandise, which must be dearly identifiable (e.g., by serial number). Nevertheless, this method of financing is widely used.

(Main Author: William J. Miller)

Trust Receipt in International Trade

Meaning of Trust Receipt, according to the Dictionary of International Trade (Global Negotiator): A document executed by a buyer in favour of a bank financing an important transaction, whereby the bank receives a security interest in the goods in exchange for releasing the documents required by the carrier for delivery. The buyer is obligated to maintain the goods or to proceeds from their resale at the disposal of the bank. Trust receipts are used under letters of credit or collections so that the buyer may receive the goods before paying the issuing bank or collecting bank. See documentary collection; letter of credit.