Field Examination (Field Exam)
A field examination is a periodic on-site review a lender performs on a borrower's collateral, books, and operating processes in asset-based lending and factoring, used to confirm that reported accounts receivable, inventory, and controls support the funds advanced against them.
A field examination, commonly called a field exam, is a structured audit a lender or factor conducts to verify that a borrower's collateral and reporting are real, accurate, and adequate to support outstanding advances. In asset-based lending (ABL) it focuses heavily on accounts receivable and inventory; in factoring it concentrates on the quality and verifiability of purchased invoices. The exam is diligence, not an accounting opinion. It exists so the lender can trust the numbers it lends against between formal financial statements.
Why lenders run field exams
When a lender advances funds against receivables, the loan is only as sound as the collateral behind it. Borrowing base certificates, aging reports, and inventory schedules are largely self-reported by the borrower. A field exam independently tests those representations. It confirms that invoices represent goods actually shipped or services actually rendered, that the receivables are owed by real debtors, and that the reporting systems feeding the borrowing base are reliable. The output directly informs advance rates, eligibility rules, and reserves.
What examiners check
Scope varies by facility size and risk, but a typical field exam reviews several areas.
Accounts receivable
- Roll-forward of the AR balance from a prior period to the exam date, reconciled to the general ledger.
- Aging accuracy and the treatment of past-due balances.
- Dilution analysis: credit memos, returns, discounts, and write-offs that reduce collectible value.
- Verification testing of selected invoices against shipping documents, proof of delivery, or signed work orders.
- Identification of ineligibles such as cross-aged accounts, intercompany or affiliate balances, foreign debtors, contras, and concentrations above limits.
Inventory (ABL)
- Valuation method, costing, and reconciliation to the perpetual system and ledger.
- Slow-moving, obsolete, in-transit, and consigned stock that may be ineligible.
- Physical existence checks and count procedures.
Cash, controls, and process
- Cash application and the integrity of lockbox or collection accounts.
- Segregation of duties around billing, collections, and posting.
- Quality of the borrower's accounting system and how the borrowing base certificate is assembled.
- Payables and other liabilities (for ABL) including taxes, payroll, and any liens that could prime the lender's position.
How a field exam works
- Planning and a document request list sent ahead of the visit.
- On-site or remote fieldwork, including system access, sampling, and interviews with finance staff.
- Testing and reconciliation against source documents.
- A written report with findings, recommended eligibility adjustments, and proposed reserves.
Frequency
Cadence is risk-based. Many lenders schedule routine exams annually or semiannually for performing, lower-risk accounts. Higher-risk, faster-growing, or covenant-stressed borrowers may be examined quarterly or more often. New facilities usually require a pre-funding exam, and an interim or unscheduled exam can be triggered by deteriorating performance, rising dilution, payment irregularities, or a material change in the borrower's business.
Outcomes
The exam report typically drives concrete changes to the facility.
| Finding | Common outcome |
|---|
| Clean results, strong controls | Advance rate maintained, normal exam cadence |
| Elevated dilution or ineligibles | Higher reserves, tighter eligibility, lower availability |
| Weak reporting or control gaps | Reporting remediation, more frequent exams |
| Fraud indicators or material misstatement | Facility freeze, default review, restructuring |
Reducing exam friction
Borrowers that maintain clean reconciliations, document invoice delivery, and produce accurate borrowing base certificates tend to pass faster and preserve availability. Continuous invoice verification and AR reconciliation between exams keep the collateral picture current, so findings hold few surprises. Zolvo's monitoring and verification tooling helps lenders and factors keep that picture accurate the rest of the year, not just on exam day.