If your business has a cash-credit or working-capital limit backed by stock and receivables, your bank will send a stock auditor — usually once or twice a year. The audit decides whether your drawing power is really supported by the security you declared. We have carried out these audits for public sector banks for more than 25 years; this is what we look at, and how to make the visit go well.
What the auditor verifies
- Physical stock — a count or test-check of raw materials, work in progress and finished goods, compared with your stock register.
- Valuation — stock should be valued at the lower of cost and net realisable value. Selling-price valuation is a common error.
- Slow-moving and obsolete stock — old, damaged or non-moving items are excluded from drawing power.
- Stock statements — the monthly statements you submit to the bank are compared with your books and the physical position.
- Receivables — debtors are aged; those beyond the bank's limit (often 90 days) are excluded. Large balances may need confirmation.
- Creditors — unpaid creditors for goods are deducted, since that stock is not fully yours yet.
- Drawing power — recalculated using the margins in your sanction letter, and compared with what you have drawn.
- Insurance — stock must be insured for its full value, with the bank's interest noted and the policy current.
- Hypothecation board — displayed at the premises, showing the stock is charged to the bank.
- Other lenders and locations — stock elsewhere, or charged to someone else, is identified.
How to prepare
- Keep the stock register current — item-wise, with quantities and values that tie to your accounts.
- Reconcile your monthly stock statements to the books before you send them. Most adverse remarks start with a statement that does not match.
- Clean up receivables — follow up or write off old debtors; the auditor will exclude them anyway.
- Check insurance renewals and that the policy covers every location.
- Have documents ready — purchase and sales registers, the last GST returns, debtor and creditor ageing, and the sanction letter.
Why it matters
An adverse stock audit report can mean a lower drawing power, closer monitoring or questions at renewal. A clean one supports your limits and your credibility with the bank. If the bank's report surprises you, an independent review of your records before the next audit often shows exactly where the gaps are.
This article is general information based on the law as it stood on 8 Sep 2026. It is not advice for your situation — rules and dates change, and the right answer depends on your facts. Speak to us before acting on it.