What Is a Field Exam in ABL? How to Prepare and What Lenders Verify

An ABL lender extends credit against assets they cannot see day to day. The borrowing base certificate — a monthly spreadsheet you submit certifying your AR aging, inventory levels, and equipment values — is the primary mechanism by which the lender tracks collateral. But the lender cannot simply take your word for it forever.

A field exam is the lender's mechanism for verifying that what you report is real. An examiner — either an employee of the lending bank or a third-party firm specializing in ABL audits — arrives at your facility and spends several days cross-checking your financial records against physical reality.

This is not an adversarial process, though it can feel that way. The examiner is not looking for fraud in most cases. They are looking for errors, inconsistencies, and collateral quality issues that the borrowing base certificate cannot capture — slow-moving inventory, disputed invoices, deferred payment arrangements that have not been flagged, equipment that has been disposed of without updating the appraisal.

Every ABL credit agreement includes field exam rights. The frequency, scope, and cost allocation are negotiated at close.

Field exams occur on two schedules: planned and unplanned.

Scheduled Exams

Most ABL facilities require one or two field exams per year, conducted at the lender's discretion. Borrowers with strong credit profiles may negotiate for one exam per year. Higher-risk borrowers — recent losses, tight availability, complex inventory — may face quarterly exams at initial close, stepping down to annual after 12 to 18 months of clean results.

The initial underwriting exam is the most thorough. The lender is establishing baseline collateral quality before committing capital. Subsequent exams are typically narrower, focusing on changes since the last review.

Trigger-Based Exams

Certain events in the credit agreement automatically entitle the lender to order an immediate field exam:

• Availability falling below the availability block threshold (typically 10% to 15% of commitment)
• A covenant breach — FCCR falling below the minimum, leverage exceeding the cap
• A material change in AR aging — sudden spike in 60-to-90-day buckets
• A significant customer becoming insolvent or disputing invoices
• Borrower filing for, or being subject to, any insolvency proceeding
• A lender-identified discrepancy between reported and actual inventory

An unscheduled exam triggered by one of these events is a signal that the lender-borrower relationship is under stress. The findings carry more weight because the lender is actively managing risk, not conducting routine diligence.

Field exam scope varies by facility type and examiner firm, but the core areas are consistent across virtually all borrowing base audits.

Accounts Receivable Verification

The examiner pulls your AR aging report and tests a sample of invoices — typically 20% to 40% of the total AR balance by dollar value, focused on larger balances and older buckets. For each sampled invoice, they verify:

• The customer purchase order or contract that supports the invoice
• Proof of delivery or service completion (bill of lading, signed delivery receipt, acceptance certificate)
• Whether the invoice has been disputed, offset, or subject to a credit memo that has not yet been applied
• Aging accuracy — is the invoice in the correct bucket, or has it been "re-aged" by reissuing it with a new date?

Re-aging is a red flag that examiners specifically look for. A borrower who reissues invoices to reset the clock on the aging bucket is misrepresenting the true quality of their AR. This finding typically results in an immediate reserve against the full customer balance and a review of the lender's fraud risk exposure.

See the guide on AR aging and eligible receivables for a detailed breakdown of what makes receivables ineligible.

Inventory Counts

For manufacturers with inventory in their borrowing base, the examiner will conduct a physical count of at least a sample of inventory — often 30% to 50% by value. They check whether inventory recorded in your system actually exists on the floor, whether it is in saleable condition, and whether WIP (work-in-process) has been correctly categorized.

Obsolete inventory — materials that have not moved in 12 to 24 months — is a common finding that results in a reserve or exclusion from the borrowing base.

Cash Management Controls

The examiner confirms that customer payments are flowing through the correct accounts — the lockbox or designated collection account specified in the credit agreement — and not being diverted. They also verify that the borrower is not using the ABL facility to fund intercompany loans, distributions to owners, or other non-approved purposes.

Financial Records

Bank statements, accounts payable aging, payroll records, and recent financial statements are reviewed for consistency with the borrowing base certificate and the borrower's reported financial condition.

A well-prepared borrower shortens the exam, reduces the risk of adverse findings, and signals operational competence to the lender. Most of the work is not done in the week before the exam — it is done in the months of routine operations that precede it.

What Findings Can Cost You

Field exam findings that reduce your availability fall into two categories. Temporary reserves are imposed for specific issues — a disputed invoice, a concentration limit temporarily exceeded — and lift when the issue resolves. Permanent reserves or advance rate reductions are imposed when systemic problems are found: persistent re-aging, chronic inventory discrepancies, weak cash controls.

A 5% reduction in your AR advance rate on a $5 million AR base costs $250,000 in borrowing capacity. That can push you below the availability block, trigger springing dominion, and create operational cash flow constraints that compound quickly.

Review how the borrowing base mechanics interact with field exam findings in a real industrial operator context. Preparation is not bureaucratic box-checking — it is capital preservation.