ABL Field Examinations: What Every Borrower Needs to Know

The Field Exam Is Where Deals Are Won or Lost

Every borrower in asset-based lending will face a field examination. It is the single most important step between term sheet and funded deal — and it is where more transactions fall apart than most people realize.

A field examination is an on-site audit of your company's collateral, operations, and financial reporting. The examiner physically verifies that the assets you're borrowing against actually exist, are properly valued, and match what you've reported to the lender. It is not a formality. It is the foundation of the lender's credit decision.

I've been involved in field examinations for over 40 years — first as a lender ordering them, then as the founder of Asset Based Lending Consultants (ABLC), which has conducted thousands of field exams for banks and lenders worldwide since 1986. Here's what borrowers need to understand about this critical process.

What a Field Examiner Actually Does

A field examiner arrives at your facility for anywhere from two days to two weeks, depending on the complexity of your business. Their job is to independently verify the collateral that underpins your borrowing base. This isn't a surface-level review — it's forensic.

Accounts Receivable Verification

The examiner will pull your A/R aging report and test a sample of invoices against actual customer purchase orders, shipping documentation, and payment history. They're looking for:

• Concentration risk — Is too much of your A/R tied to one or two customers?
• Dilution — What percentage of invoices get credited back through returns, allowances, or disputes?
• Cross-aging — If a customer owes you on invoices that are both current and 90+ days past due, the entire balance may be deemed ineligible.
• Billing and credit practices — Are invoices issued on shipment? Are credit memos properly documented?

This is where ABLC's field examination services add particular value — their examiners bring decades of experience identifying issues that less experienced audit firms miss, such as hidden dilution patterns or misclassified aging buckets.

Inventory Verification

Inventory is where field exams get complicated. The examiner will conduct a physical count, compare it to your perpetual records, and assess:

• Existence and condition — Is the inventory actually there? Is it saleable?
• Obsolescence — How long has it been sitting? Is there slow-moving or dead stock?
• Valuation methodology — Are you using cost, market, or some hybrid? Lenders want the lower of cost or market.
• Category breakdown — Raw materials, work-in-process, and finished goods get different advance rates. WIP is often excluded entirely.

I've seen deals collapse because the borrower's inventory records showed $4 million in finished goods, but the field exam revealed $1.5 million was obsolete product sitting in the back of a warehouse. The borrowing base evaporated overnight. If you want to understand the fundamentals of how borrowing bases work, read our guide on what asset-based lending is and how it works.

Cash and Banking Verification

The examiner will review your bank accounts, cash management procedures, and deposit patterns. They're verifying that collections flow through the proper lockbox or dominion accounts and that there are no undisclosed bank relationships.

Operational and Internal Controls Review

Beyond the numbers, examiners assess your operational controls. How sophisticated is your accounting system? Do you have proper segregation of duties? Are journal entries documented? Can your team produce accurate borrowing base certificates?

This matters because lenders are betting that your ongoing reporting will be accurate. If your internal controls are weak, the lender will either walk away or impose tighter monitoring requirements.

Types of Field Examinations

Not all field exams are the same. Understanding the different types helps you know what to expect at each stage of the lending relationship.

Initial (Pre-Loan) Field Exam

This is the most comprehensive exam. It happens before the lender funds the deal, and it covers everything: A/R, inventory, cash, internal controls, management quality, and reporting infrastructure. The results directly influence advance rates, reserves, and covenant structures. For a deeper look at what lenders want to see in your overall deal package, see our article on the ABL credit package.

Periodic (Ongoing) Field Exams

Once the deal is funded, lenders require periodic exams — typically quarterly or semi-annually, depending on the credit quality. These are narrower in scope but still verify that collateral values and reporting remain accurate. ABLC provides ongoing monitoring and field exam services that help lenders maintain continuous oversight without burdening their internal teams.

Event-Driven Exams

If a borrower trips a covenant, shows declining collateral values, or experiences a material change in business operations, the lender will order an event-driven exam. These are often more intensive than periodic exams because there's already a concern that something has changed.

How to Prepare for a Field Examination

Preparation is everything. A well-prepared borrower makes the examiner's job easier, speeds up the process, and — critically — avoids surprises that could derail the deal.

1. Clean Up Your A/R Aging

Before the examiner arrives, scrub your aging report. Clear out old credits, resolve disputes, and make sure your invoicing is current. Every unresolved credit memo is a red flag.

2. Reconcile Inventory to General Ledger

Your perpetual inventory records should tie to your GL. If there's a discrepancy, identify and explain it before the examiner finds it. Unexplained variances kill credibility.

3. Organize Supporting Documentation

Have customer purchase orders, shipping documents, and invoices organized and accessible. The examiner will test a sample — if you can't produce backup for a selected invoice, it gets excluded from the eligible base.

4. Brief Your Team

Your controller, warehouse manager, and sales team should all know the exam is happening. The examiner will interview multiple people. Consistent answers build confidence; contradictions raise red flags.

5. Be Transparent About Issues

If you know there are slow-paying customers, obsolete inventory, or accounting quirks — tell the examiner upfront. They will find these issues regardless. Proactive disclosure builds trust; discovery through investigation destroys it.

What Happens After the Field Exam

The examiner produces a detailed report — typically 20 to 50 pages — that goes directly to the lender's credit committee. This report includes:

• Verified collateral values and recommended eligibility criteria
• Suggested advance rates for each asset class
• Identified risks and recommended reserves
• Assessment of management quality and reporting infrastructure
• Comparison to prior exams (for ongoing credits)

The lender uses this report to finalize the borrowing base formula, set advance rates, and determine covenant requirements. A clean field exam accelerates closing. A problematic one can delay funding by weeks or kill the deal entirely.

The Cost of Cutting Corners

Some borrowers view field exams as a nuisance — an expensive formality they have to tolerate. That mindset is dangerous. The field exam exists to protect both the lender and the borrower. An accurate understanding of your collateral position means you borrow the right amount at the right terms.

I've trained over 5,000 lending professionals internationally at institutions including GE Capital, JP Morgan Chase, Lloyds, and Barclays — and the one message I consistently deliver is this: you don't know what you don't know. The field exam is how lenders bridge that gap. Borrowers who embrace the process, rather than resist it, consistently get better terms and faster closings.

If you want to know more about how lenders evaluate deals beyond the field exam, read our article on how to choose the right ABL lender.