Important Disclosure. For professional counterparties only. Informational content. Not a public offer. Any mandate is subject to underwriting, KYC/AML, sanctions screening, conflicts checks, and definitive documentation.
Inspection Regimes In Commodity Finance: Frequency, Scope & Liability Allocation
In commodity finance, inspections are not administrative formalities.
They are a core credit control.
Most trade finance losses linked to “fraud” are inspection failures, control failures, or reliance on self-reporting.
A bankable inspection regime answers four questions continuously:
- Does the commodity exist?
- Where is it located?
- How much is there?
- What is its quality?
The Function Of Inspections In A Control Stack
Inspections sit between collateral documentation and account control.
They validate that the asset base supporting borrowing availability is real and unchanged.
Without inspections:
- Borrowing base certificates become unverified spreadsheets
- Inventory pledges become theoretical
- Cash waterfalls rest on unproven asset assumptions
Core Inspection Types
Pre-Shipment Inspection (PSI)
Confirms quantity and quality before goods leave origin.
Post-Shipment / Discharge Inspection
Confirms quantity and quality upon arrival.
Stock Monitoring
Periodic physical verification of inventory in storage.
In-Transit Monitoring
Tracking and verification while cargo is moving.
Frequency Design
Inspection frequency is a credit decision, not an operational convenience.
| Risk Driver | Low Risk Profile | High Risk Profile |
|---|---|---|
| Commodity Volatility | Monthly or quarterly | Weekly or per-movement |
| Jurisdiction | OECD | Frontier / high corruption risk |
| Storage Type | Licensed bonded warehouse | Open yards / third-party depots |
| Sponsor Track Record | Multi-year audited history | Limited or new operator |
Higher frequency directly increases lender comfort and advance rates.
Scope Of Work (What Inspectors Must Verify)
- Physical existence
- Gross and net weight
- Grade / assay / specification
- Packaging or containment condition
- Storage location and segregation
- Seal integrity where applicable
- Chain of custody documentation
Narrow scopes create blind spots.
Lenders increasingly require inspection scopes to be appended to facility agreements.
Independence Requirements
Inspectors must be:
- Independent of borrower and counterparties
- Contracted directly or via collateral manager
- Covered by professional indemnity insurance
Operator-generated certificates are not credit-grade.
Liability Allocation
Inspection regimes only work if liability is clearly assigned.
Inspector Liability
- Negligence in measurement
- Failure to follow scope
- False reporting
Borrower Liability
- Misrepresentation
- Obstruction of inspection
- Unauthorized release
Facility agreements typically cap inspector liability but require minimum insurance limits.
Integration With Borrowing Base
Inspection results feed directly into borrowing base calculations.
- Confirmed quantities become eligible inventory
- Discrepancies trigger reserves
- Missing inspections block availability
Common Failure Modes
- Infrequent inspections in high-risk jurisdictions
- Overreliance on historical reports
- No reconciliation between inspections and borrowing base
- Inspectors hired by borrower without lender approval
Where FG Capital Advisors Fits
FG Capital Advisors designs inspection regimes as part of structured trade finance control stacks.
We coordinate inspection scope, frequency, and reporting so that lenders can underwrite with confidence.
We then place these structures with private credit and institutional lenders.
Disclaimer. Best-efforts execution. No guarantees of funding, pricing, or closing.
