—Guide
Stock and Book Debt Statements: How Drawing Power Is Calculated
How banks calculate drawing power on working capital limits from stock and receivables, typical margins and exclusions, and how to prepare statements that stand up to stock audits.
For cash credit and overdraft limits secured by stock and receivables, the amount a borrower can actually draw — the drawing power — depends on periodic stock and book debt statements. Errors can suddenly reduce available credit.
The Basic Calculation
- Take eligible stock — raw materials, work in progress and finished goods — valued at the lower of cost and market value.
- Deduct creditors for goods (unpaid stock), where the sanction requires.
- Apply the stock margin set in the sanction.
- Add eligible receivables, excluding those older than the age limit (often 90 days).
- Apply the receivables margin.
- Drawing power is the total, capped at the sanctioned limit.
Typical Exclusions
- Obsolete, slow-moving or damaged stock.
- Stock not owned, such as goods on consignment.
- Receivables beyond the age limit, from related parties, or in dispute.
- Stock covered by other lenders' charges.
Frequency
Statements are commonly monthly, due within a set number of days after month-end. Late submission can lead to penal charges or frozen limits.
Stock Audits
Banks appoint stock auditors to verify statements periodically. Auditors compare statements with the books, physical stock and receivable ledgers. Large differences can reduce limits and damage the relationship.
Good Practice
- Prepare statements from the books, not estimates.
- Apply sanction rules on valuation and ageing consistently.
- Reconcile statements with quarterly financials.
- Keep stock records that support physical checks.
Getting Help
Think Filing prepares and reviews stock statements and supports borrowers through stock audits.