Reviewed by Aug 27, 2020| Updated on
Meaning of a Warehouse Receipt
Warehouse receipt is a form of documentation used within futures markets to ensure the quality and quantity of a particular commodity stored within an approved facility. Warehouse receipts are part of the processing of business transactions involving futures contracts for physical delivery. Instead of moving the actual goods under contract immediately, warehouse receipts are used to settle future contracts. In the case of precious metals, warehouse receipts may also be referred to as vault receipts.
Warehouse receipts can be negotiable or non-negotiable. A warehouse receipt which is made to the “order” of a named party is known as a bearer instrument. With the order bill of lading, the ownership of the warehouse commodities can be transferred from party to party by endorsing and passing the documents. A warehouse receipt which lacks the word “order” is to a non-negotiable bill of lading, as it permits delivery only to the named party.
## Use of Warehouse Receipts
Warehouse receipts are yet another operational step undertaken when a physical commodity is used as a backup for a future contract. The receipt of the warehouse shall provide the exchange with the documentation that the commodities authorized for sale are available and ready for transfer to the purchaser. An entity selling its inventory will enter into a futures contract to sell at a specified price.
Warehouse receipts are required when writing a short commodity futures contract. An entity that takes a long position shall be assured of receipt of the warehouse. The entity with a long-term contract at expiration shall receive the inventory of the goods at the specified price.
## When Is a Warehouse Receipt Used?
Warehouse receipts are often used in instances where the seller enters into a contract with the producer, purchases certain goods which are not in stock, and then uses warehouse receipts to collect the product at the warehouse.