A trust receipt is an import-financing instrument in which a bank releases imported goods to a buyer/importer before the buyer pays the bank — the buyer holds the goods in trust for the bank, and the bank retains a security interest until the goods are sold and payment remitted. Governed by UCC Article 9.
Trust receipts bridge the gap between a bank paying a foreign supplier (via letter of credit) and the importer selling the goods and generating cash to repay the bank. When an importer's LC is drawn by the foreign seller, the bank pays the seller. Rather than holding the goods in a warehouse until the importer pays, the bank releases them under a trust receipt arrangement — allowing the importer to receive inventory and begin selling immediately. Legal structure: The trust receipt creates a creditor-debtor relationship governed by UCC Article 9 (Secured Transactions). The bank retains a perfected security interest in the goods, proceeds, and accounts receivable generated from selling those goods. The importer holds goods as the bank's trustee, not as owner — meaning in bankruptcy, trust receipt goods can be distinguished from the importer's general estate if the bank's interest is properly perfected (UCC-1 financing statement filed, or possession/control). Trust receipts are most common in auto dealer floor plan financing (where dealers receive vehicles on trust receipt from lenders, paying off each unit when sold) and in import-heavy industries (electronics, apparel, commodities). The Federal Reserve's periodic credit surveys track floor plan credit as a component of dealer financing. The Office of the Comptroller of the Currency (OCC) provides guidance on trust receipt arrangements under OCC Handbook for Commercial Lending. For small business importers using letters of credit, banks typically require a trust receipt agreement as part of the LC facility documentation. Interest accrues from the date the LC is drawn until the goods are sold and proceeds remitted to the bank.
A letter of credit is the payment instrument the bank issues to guarantee payment to the foreign seller. The trust receipt is the post-LC financing arrangement under which the bank releases already-paid-for goods to the importer on credit. LC → bank pays seller → trust receipt → bank releases goods to importer → importer sells → importer repays bank.
The importer is personally liable for the value of goods held under trust receipt whether or not they are sold. If goods are damaged, stolen, or unsalable, the importer must still repay the bank. Some importers carry cargo and inventory insurance to mitigate this risk. Failure to remit proceeds when goods are sold (also called 'conversion' of trust receipt proceeds) is a serious default that can trigger immediate acceleration of all amounts owed.