The Collateral Field Exam: What Your Lender's Auditor Checks, and Who Pays

If you borrow against your receivables or inventory, your loan agreement almost certainly gives the lender the right to send in a field examiner. Most borrowers skim past that clause at closing and then get surprised when an auditor shows up asking for a full accounts-receivable aging, sample invoices, and proof that the inventory on the warehouse floor matches the number on the borrowing base. This post explains what the exam actually tests, why the lender runs it, how often it happens, and — the part that stings — why the bill lands on your desk.

What a field examination actually is

A field exam is an on-site collateral audit. It is not a financial-statement audit by your CPA, and it is not the same as the borrowing base certificate you submit each month. The certificate is your self-report; the field exam is the lender checking whether that self-report holds up. An examiner — sometimes a bank employee, often a third-party firm the lender hires — comes to your place of business, pulls your books, and tests whether the collateral you say exists really exists, really belongs to you, and is really collectible.

Regulators treat this as a core control for asset-based lending. The Office of the Comptroller of the Currency, in its Asset-Based Lending booklet, describes collateral field examinations as a fundamental part of monitoring a revolving ABL facility, precisely because the loan is secured by assets that turn over and change value week to week. The exam is how the lender confirms its collateral is still there and still worth lending against.

What the examiner checks

The scope varies by lender and by the size of your facility, but a typical field exam looks at some or all of the following:

• Accounts receivable aging. The examiner reconciles your A/R aging to the general ledger and to the borrowing base, then tests how much of it is genuinely current versus stale. Receivables past a cutoff — often 90 days from invoice — usually get knocked out as ineligible.
• Dilution. This is the share of receivables that never turns into cash: credit memos, returns, discounts, warranty adjustments, write-offs. High dilution tells the lender your invoices overstate what you will actually collect, and it directly pressures your advance rate.
• Concentration. If one customer makes up a large slice of your receivables, the examiner flags it. A single customer going bad could sink the whole collateral pool, so lenders cap how much of any one account counts.
• Invoice verification. The examiner pulls a sample of invoices and traces them to shipping documents, purchase orders, and proof of delivery — confirming the sale was real and the goods actually went out.
• Ineligibles. Beyond aged and concentrated accounts, the examiner looks for related-party receivables, foreign accounts, contra accounts (where you also owe the customer), consignment sales, and progress billings — categories that typically do not qualify as collateral.
• Inventory. If you borrow against inventory, the examiner tests counts, valuation method, and the split between raw materials, work-in-process, and finished goods. Slow-moving or obsolete stock gets discounted hard.
• Payables and taxes. The examiner often reviews aged payables and checks for unpaid payroll taxes, because tax liens can jump ahead of the lender’s security interest.

Why the lender cares so much

In an asset-based structure, the collateral is the repayment source if things go wrong. The lender is not primarily betting on your profitability; it is betting that if it has to liquidate, your receivables and inventory will cover the loan. That only works if the reported numbers are honest and the assets are good.

The field exam feeds two levers the lender pulls to protect itself:

• Advance rates — the percentage of eligible collateral it will lend against. If dilution runs high or collections run slow, the examiner’s findings justify a lower advance rate.
• Ineligibles — the categories carved out of the collateral base entirely. More ineligibles means a smaller borrowing base and less availability on your line.

So the exam is not a formality. Its results can quietly shrink how much you are allowed to draw, even if nothing else about your business changed.

How often exams happen

Frequency scales with risk. A seasoned borrower with a clean track record and a healthy facility might see one exam a year. A newer relationship, a stressed borrower, or a fast-growing one might face quarterly exams — or more. The OCC’s guidance ties exam frequency to the risk profile of the credit: the weaker or more volatile the borrower, the more often examiners come through. If your covenants tighten or you trip a technical default, expect the lender to increase exam frequency as part of watching the account more closely.

Read your loan agreement for the actual terms. Many facilities specify a minimum number of exams per year and grant the lender the right to order additional exams at its discretion, with the cost passed through to you.

Who pays — and how much

You do. This is the part borrowers consistently underestimate. Field exam costs are almost always borrower expenses under the loan agreement, charged directly to your loan account. They are typically billed as a day rate per examiner plus travel and out-of-pocket expenses, so the total depends on how many examiners come, how many days they spend, and how far they travel. A straightforward annual exam for a small facility is modest; a multi-day exam with multiple examiners and overnight travel is not.

A few things worth knowing before the invoice arrives:

• You pay whether or not problems are found. The exam is the lender’s cost of monitoring; a clean result does not earn you a refund.
• Extra exams cost extra. If the lender orders exams beyond the contractual minimum because it is worried about your account, those added exams are usually billable to you too.
• Some agreements cap it; many do not. A few facilities limit the number of borrower-paid exams per year unless a default has occurred — after a default, the cap often disappears. Ask for that protection before you sign, not after.

How to come out of an exam clean

A good field exam is boring, and boring is cheap. The examiner finds what you reported, the numbers reconcile, and the facility rolls on unchanged. You can stack the odds in your favor:

• Reconcile before they arrive. Make sure your A/R aging ties to your general ledger and to your most recent borrowing base certificate. Unexplained gaps are the fastest way to turn a one-day exam into a three-day one.
• Know your dilution. Track credit memos, returns, and write-offs yourself. If you already know the number, you can explain it; if the examiner surfaces it first, it looks like a surprise.
• Clean up obvious ineligibles. Pull related-party and contra accounts out of your own reported base before the examiner does it for you.
• Have documents ready. A sample of invoices with matching shipping docs and proof of delivery, organized in advance, cuts examiner hours — which cuts your bill.
• Keep payroll taxes current. Unpaid federal payroll taxes are a red flag because the resulting lien can leapfrog the lender’s position.

The takeaway

A field examination is not the lender distrusting you personally — it is a structural feature of borrowing against assets that move. But it is your money paying for it, and its findings set the advance rates and ineligibles that decide how much you can actually draw. Treat the exam as a recurring, borrower-funded event you can prepare for: reconcile your books, understand your own dilution and concentration, and negotiate a cap on borrower-paid exams before you close. The cleaner your reporting, the shorter the exam, the smaller the bill, and the less likely your availability quietly shrinks.

Important: MidBank is not a bank, a financial institution, or a financial advisor. We are an advocate and ISO affiliate that connects businesses to vetted third-party providers. This article is general information published on November 6, 2026, not legal, tax, or financial advice — rules and rates change, and your situation is specific to you. Confirm details with the primary sources linked above and with a qualified tax or legal professional before acting.