Extending short-term financing through a trust receipt assumes that the client or borrower is in a good position with the bank. The bank and the customer must also accept the terms of the trust report, including terms such as due date, interest expense and amount of financing. From the client`s perspective, fiduciary revenue financing is particularly relevant for importers of raw or semi-finished products who need these materials for their manufacturing process. Because a customer with a significant raw material importance receives money only when they sell finished products on the market, these customers often seek financing from banks or other financial institutions to make payments to their suppliers during the manufacturing phase. A confidence document is a financial proof that is taken care of by a bank and a company that has received the delivery of goods, but which can only pay for the purchase after the sale of the stock. In most cases, the company`s cash flow and working capital may be tied to other projects and activities. The structure of the trust documents is not a guarantee, but places the financier in a better position for remedies than other unsecured lenders, provided that the goods are properly traced and identified in relation to the corresponding lading or their revenues. During the normal conduct of a commercial transaction, companies purchase goods for their inventory from sellers or wholesalers in order to resell them or manufacture goods to the consumer. These goods can be purchased locally or imported by other companies. When these companies receive the goods, they are also charged by the seller or exporter for the products purchased. If the company does not have the cash to pay the bill, it can obtain financing from a bank through a trust receipt.
Trust Receipts are not defined by the VaE Act. In practice, trust receipts are receipts issued by the owner of the merchandise, which allow another party to process the goods on behalf of the owner. In the case of TR, the buyer must keep the goods safely and separately from other stocks. The buyer acts as the bank`s agent for the storage and sale of the goods. Even if the title or ownership of the property remains in the bank, the buyer has the property. The buyer can do something with the merchandise or the estate as long as he (or she) does not violate the terms of the contract with the bank. In the United Arab Emirates, trust reception facilities are often used as documentary financing. Banks and financial institutions provide letters of credit on behalf of their customers to enable customers to use their purchased products (financed by these letters of credit) and to enter into a debt transfer agreement so that the products can be made available to the customer for sale in local markets.
The proof of trust ensures that the bank retains ownership of the goods while giving the customer the right to act. The concept of “trust” mentioned in the Code of Commerce is different from that of trusts, as understood in common law legal orders. The term “trust” is literally translated from the term “Amanah.” The term Trust or Amanah derives from the uae civil code and refers to a conservation or deposit agreement that was created contractually when one party entrusts or deposits its assets to another party for safeguarding and conservation.