Third-Party / 3PL Held Stock
Third-party held stock is inventory owned by a business but stored at a logistics provider's facility under a warehousing agreement. Ownership is unaffected by the arrangement, so the goods remain on the owner's balance sheet. Because one facility typically holds goods for several principals at once, establishing whose stock is whose is a precondition of any count conducted there.
What Is Third-Party / 3PL Held Stock?
Outsourcing warehousing does not outsource ownership. Goods sitting in a warehouse run by an outside operator remain the property of the business that put them there, stay on its balance sheet, and remain its security if a lender has taken a charge over them. What changes is that nobody from the owning business sees the stock from one month to the next, and the position is known only through reports the operator produces.
That is precisely why these locations are verified rather than accepted on report. One building will commonly be storing consignments belonging to a number of different owners at the same time, often of much the same description, so sorting out who owns what has to happen before counting begins rather than as a refinement afterwards. The storage agreement, the receiving records and the physical markings are what settle it. A count that produces a total for a building without resolving ownership within it has produced a number no lender can advance against and no auditor can rely on.
Who Owns the Stock Under Third-Party / 3PL Held Stock
The depositor owns the goods throughout; the operator holds them under a contract for storage.
- Nothing about placing goods in somebody else's building transfers any interest in them, so they remain in the depositor's inventory and subject to any charge a lender has registered.
- What the operator keeps amounts to a bailment log, not stock accounts of its own, and none of it belongs in its balance sheet.
- The evidence is the storage agreement, the receiving documentation and any physical markings or segregation at the location.
- What complicates it is that a single building commonly stores consignments for a number of different owners, often looking much alike, so working out whose is whose has to come before any quantity means anything.
- A count producing a building total without resolving whose each portion is has produced a figure no lender can advance against.
How Third-Party / 3PL Held Stock Works in Practice
- A storage agreement is signed setting out what the operator will hold, how it will be reported, who bears risk of loss, and the owner's right to attend and verify.
- Consignments arrive and are booked in. Nothing about title changes, so the goods continue to sit in the depositor's accounts and under whatever charge a lender has registered.
- The operator stores them, ideally in marked or segregated space, and maintains custody records that are not inventory records of its own business.
- Position reports are issued periodically, and the owner reconciles them against its own despatch and receipt records.
- Because those reports come from the party holding the goods, the position is tested by attending and counting. The count establishes quantity, and the agreement, receiving records and markings together establish that what is there belongs to the owner rather than to another principal.
Third-Party / 3PL Held Stock: A Worked Example
| Evidence | Obtained | Weight |
|---|---|---|
| Warehouse operator's stock statement | Yes | Low, produced by the holder |
| Written confirmation to the auditor | Yes | Moderate, external but on request |
| Auditor's attendance at the 3PL count | Yes, one of four sites | Strong for that site |
| Independent count at the other three | No | Nil |
| Value covered by attendance | Rs 1,90,00,000 of Rs 6,40,00,000 | 30% |
A Bhiwandi third-party operator holds Rs 6.40 crore across four sites for a consumer goods company.
The table is really about how much of the number is actually supported. Confirmation from the operator covers everything on paper but comes from whoever has custody of them, so it is corroboration rather than proof. Attendance at one site gives strong evidence for Rs 1.90 crore and none whatever for the remaining Rs 4.50 crore. Where a lender's security sits largely at third-party premises, coverage by value is the figure to report, because a statement that all four sites were confirmed reads as far more assurance than 30% attendance provides.
Common Mistakes With Third-Party / 3PL Held Stock
Outsourcing the storage does not outsource the responsibility, and the errors follow from acting as though it did.
- Accepting the operator's periodic report in place of verification, when the report is a statement by the party holding the goods.
- Omitting the stock from the reported figure because it is not on the premises, when it remains the business's asset and its security.
- Counting a building total without establishing whose each part is, leaving a figure that supports no lending decision at all.
- Storing goods without markings or a segregated area, so attribution depends entirely on the operator's own records.
- Negotiating the storage agreement without a right of access for verification, which leaves a reluctant operator with a straightforward basis to refuse.
Need Help With Third-Party / 3PL Held Stock?
Understanding the term is the easy half. The harder half arrives when stock sits at a facility nobody from the business visits, and it is answered on site rather than on paper. auditing warehouse and 3PL stock sets out how that is done and what has to be ready before anybody travels.