Definition of trust receipt

instrument acknowledging that the borrower holdsspecified property in trust for the lender. The lender retains title. Thistype of financing is used for equipment dealers, automobile dealers,and others involved in durable expensive goods. When the lenderreceives the sale proceeds, title is given up.

1. written agreement used extensively in letter of credit financing, often extended to a buyer or other importer of goods. The buyer promises to hold the property received in the name of the bank arranging the financing, although the bank retains title to the goods. Trust receipts allow an importer to take possession of the goods for resale before paying the issuing bank.
2. type of security agreement now part of Article 9 of the Uniform Commercial Code that controls credit extensions to sellers of durable goods. The seller, say an automobile dealer, has possession of the cars in the dealer's showroom and pays the lender from a trust account as the cars are sold. The lender may also take a financing statement from the dealer before making the loan.See also floor planning; indirect loan