A warehouse report can be accurate and still answer the wrong financing question. In our 2023 review, the report showed ₹14 crore of stock physically held. It included ₹5 crore of customer-owned property. The draft borrowing-base schedule applied a 70% advance rate to the whole amount and showed ₹9.8 crore of capacity. The fictional facility admitted eligible company-owned stock. Once the customer property was excluded, the reviewed base was ₹9 crore and the corresponding amount was ₹6.3 crore. The difference did not arise because material had vanished from the warehouse. It arose because custody and financing eligibility were different conditions.
Understand the purpose of the source record
Operations needed a record of what it held, including material for which it had custody responsibilities even though the company did not own it. Combining categories in a physical-stock account could serve that purpose. Finance had another task when preparing the borrowing-base submission: it needed to identify the property admitted by the particular agreement. The same total could not move between those purposes without its conditions being examined. I wanted the team to understand why a source record reconciled before deciding that its reconciliation was sufficient evidence for the proposed use. Accuracy depends partly on the question the record was designed to answer.
The initial finance response was to defend the ₹14 crore because it matched the warehouse report. That was a useful check but not a complete one. Operations also correctly pointed out that its staff were responsible for safeguarding both owned and customer material. Neither fact established an entitlement to borrow against the customer's property under this facility. I asked colleagues to separate the physical responsibility from the financing condition. The purpose was not to assign fault to the warehouse for recording what it held. It was to stop a finance schedule from claiming a meaning that the source report did not provide.
Ownership can be easy to lose when information is condensed. A full operating record may carry a category or contract reference that disappears in the management total. The total then travels into another calculation with a familiar label such as inventory. That label can conceal distinctions the next decision depends on. In our case, the omitted distinction changed the amount the facility could support. I wanted the supporting schedule to retain enough context that a reviewer could see why an item was included, rather than being asked to trust a single total whose relevant conditions were held in another team's memory.
The agreement mattered as much as the ownership record. This invented facility used a 70% advance rate for the eligible company-owned stock in the reviewed schedule. That is a fact of the fictional contract, not a universal lending rule. Another arrangement might have different eligibility requirements, exclusions or calculations. Even ownership alone does not establish eligibility everywhere. The CFO's responsibility is to understand the actual terms and apply them to the relevant evidence, with appropriate professional support. A general belief that inventory supports working-capital finance is not sufficient to prepare a particular submission correctly.
Apply the agreement to the eligible property
Excluding ₹5 crore of customer property left ₹9 crore in the reviewed eligible company-owned category. Applying seventy per cent gave ₹6.3 crore. The draft had shown ₹9.8 crore by applying the same percentage to ₹14 crore, so its apparent headroom was overstated by ₹3.5 crore. We corrected the submission before borrowing against it. No loan had been drawn on the incorrect amount. The correction was therefore not described as a default or an emergency repayment, and the customer property was not written off merely because it was outside our borrowing base. Its physical presence and custody obligations continued.
The smaller figure affected the internal funding plan. Colleagues had begun considering commitments with the larger amount in mind. I needed to explain that the review had not taken away capacity the contract actually provided; it had removed an assumption that should not have been in the proposal. That distinction is financially important and can be difficult to communicate when a team is trying to fund useful work. The underlying operating need may still be real. The company must then assess how to meet it using supportable resources, rather than allowing the strength of the need to justify an unsupported financing calculation.
We separated the custody categories in the evidence supporting later facility reviews. This did not require the warehouse to stop recording customer material. It required finance to preserve the distinction when using the record for another purpose. I wanted the relationship between the source and the submission to be explainable: which category had been carried forward, which condition admitted it and which material remained excluded. A reviewer should be able to follow that reasoning without reconstructing a verbal explanation after the fact. The change improved the clarity of the process without claiming that every future classification question had been eliminated.
There was also a leadership boundary to preserve. Finance was responsible for the financing interpretation, while operations retained responsibility for the material in its custody and the applicable handling arrangements. Correcting the borrowing base did not change who owned the customer's property or authorise another use of it. I did not want a financial review to create an operating instruction by implication. Where a contract or title question needed specialist assessment, it had to receive it. The public case explains the decision at a level useful for understanding judgement without offering legal advice about an actual customer's materials.
Explain the headroom that was never available
A correction can look like a negative result when compared with the earlier presentation. The apparent headroom fell by ₹3.5 crore. But a board should understand whether that movement represents a real change in the underlying business or the removal of a mistaken assumption. In our case, the inventory categories and the contract condition were already there. The draft had combined them incorrectly for its purpose. I wanted the account to distinguish a financing resource that had become unavailable from one that had never been supported by the reviewed agreement. Otherwise, the organisation could misunderstand both the problem and the effectiveness of the response.
The same discipline helps avoid a false success claim. Correcting a submission before borrowing is an appropriate action, but it does not establish a quantified amount of loss prevented. We did not know a counterfactual path in which the incorrect schedule necessarily produced a particular financial consequence. The case can explain the control, the correction and the changed plan without inventing that amount. A credible leadership account should be comfortable with a bounded result. The numbers already show why the distinction mattered; they do not need an additional imagined benefit to make the work significant.
For a board, I would ask how management connects a financing claim with the rights and conditions behind the underlying resource. What does the source record measure? Which categories does it combine? Which agreement determines eligibility, and how are changes reflected before the company relies on the amount? These are oversight questions about the reliability of the management proposition. They do not require directors to classify every stock item themselves. The executive team should own the process and bring important uncertainties forward, with specialist advice where the condition cannot be resolved through ordinary operating evidence.
The warehouse total remained useful after the borrowing-base correction. It still described material physically held and helped operations fulfil its responsibilities. The financing schedule became useful when it retained the ownership and agreement conditions relevant to its own purpose. That is the distinction I would bring to another enterprise: the best source record is not automatically the final answer to every question asked of it. A CFO should preserve the meaning that makes a resource available, so the company commits itself against an entitlement it can explain rather than a total that merely looks substantial.