Stock Statement for Cash Credit: Drawing Power From the Godown Up

Debtor ageing and ineligible receivables

Not every rupee owed to you counts. Banks set an ageing cut-off (commonly somewhere in a 90-to-180-day range, bank-specific) beyond which a receivable is treated as ineligible for DP purposes, on the reasoning that a debt outstanding that long is less likely to be collected at face value and shouldn't be treated as near-cash security. Related-party receivables (sales to group companies or connected entities), disputed invoices and debts under litigation are typically excluded entirely, whatever their age, because their collectability is uncertain. The receivables tracker keeps the ageing visible between statements, so an old invoice does not fall out of DP by surprise.

What quietly shrinks drawing power

Most DP shortfalls that surprise business owners trace back to a handful of avoidable errors:

• Duplicate stock entries: the same batch counted once in the godown's records and again in a processing-unit tally, inflating the reported figure until an audit catches it.
• Including obsolete or damaged stock at full value instead of writing it down or excluding it.
• Including stock already sold but not yet removed from the books: a timing gap between dispatch and invoice recording that inflates the statement.
• Ignoring or understating creditors for stock, which overstates the "paid-for" portion eligible for DP.
• Valuing stock at selling price instead of the lower of cost or market value.
• Including old, disputed or related-party receivables past the eligible window or category.
• Mismatch with GST returns or accounting records: if your stock statement shows numbers your GST filings or books don't support, that inconsistency is exactly what a stock audit is designed to surface, and it damages trust well beyond the month in question.

None of these need to be deliberate to cause real damage: a rushed statement prepared from memory rather than from actual godown and purchase records is enough to introduce several of them at once.

Physical stock, books, GST, and godown records all have to agree

A stock statement that exists only as a number handed to the bank, disconnected from your purchase invoices, sales invoices, GST returns and godown or warehouse records, is a liability waiting to surface, usually at the worst time: during a stock audit or a renewal review. The discipline that protects a business is keeping these four sources reconcilable at any time: what the godown records show as physically present, what the purchase ledger shows as bought and paid for, what GST returns report as inward and outward supply, and what the stock statement declares to the bank. When all four tell the same story, a stock audit is a formality. When they don't, it is a real problem, whatever the intent. At our mill that reconciliation is routine, beginning with the godown register against the stock ledger.

Insurance value versus book value versus drawing-power value

These are three different numbers describing the same physical stock, and conflating them causes real confusion:

• Book/accounting value follows accounting conventions: typically cost or net realisable value, whichever is lower.
• Drawing-power value is the bank's own eligible value after exclusions and margin, usually lower than book value because of those deductions.
• Insurance value should reflect the full replacement or reinstatement cost of the stock, which can be higher than book value, especially after a period of rising input prices. Underinsuring stock relative to its real value is a real risk in the event of a claim, covered in full in Insurance Required for a Cash Credit Limit.

Do not assume that because the bank's DP calculation values your stock conservatively, that same conservative figure is adequate as your insured sum. Those two numbers serve entirely different purposes.

Book debts in more depth: what "eligible" actually excludes

Beyond the basic ageing cut-off, banks typically apply a few further exclusions when arriving at eligible book debts for drawing-power purposes: debts owed by group or related-party entities (a sale to a connected party doesn't carry the same independent collection risk as a genuine third-party sale); advances received from customers (which are a liability, not a receivable, and are sometimes wrongly netted); export receivables where a separate export-finance facility already covers them (to avoid financing the same receivable twice); and any receivable currently under dispute or litigation, however recent. Getting this list right matters, because overstating eligible book debts is one of the more common, and more quickly detected, errors in a stock-and-book-debt statement. A bank's periodic review typically samples receivables directly against customer confirmations or invoices.

How a bank inspection or stock audit is actually conducted

A typical stock audit, whether done by the bank's own officers or by an external chartered accountant firm empanelled for the purpose, involves a physical count or a representative sample count of stock at the declared location(s), reconciled against the most recent stock statement, the purchase and sales ledgers for the intervening period, and often the GST returns for the same period. The auditor is looking for the mistakes listed above: quantities that don't reconcile, valuation that looks inflated against market rates, and locations or categories of stock that weren't declared. A business that keeps its records current (not just accurate in hindsight, but accurate at any random point in time) experiences a stock audit as a short, uneventful formality. A business that reconstructs its numbers only when a statement is due experiences the same audit very differently.

Rice mill example: paddy, rice, broken rice, bran, husk, and packaging

For a rice mill, a stock statement has to break down several distinct categories that a generic "finished goods" line would hide:

• Paddy (raw material): bought seasonally, often the largest single stock value on the books for months at a stretch.
• Rice (finished goods): the primary milled output, valued at realistic current market rates, not optimistic ones.
• Broken rice: a lower-value byproduct of milling, valued at its own (lower) market rate rather than at whole-rice prices.
• Bran: sold separately, typically to oil-extraction units, at its own market value.
• Husk: sold as fuel or for board-making, again at its own distinct, usually modest, value.
• Packaging material: bags and packaging stock, a smaller but real line item, especially just before a dispatch cycle when packaging is bought in bulk.

Getting the valuation of each byproduct right, rather than lumping bran and husk into a rounding-error "miscellaneous" line or, worse, valuing them at rice-equivalent prices, is part of what keeps a rice mill's stock statement accurate and useful for the business's own decisions, not just for the bank. If you want these lines tracked separately all year, the Rice Mill Finance Tracker keeps paddy purchases, milling yield and by-product income apart.

Seed business example: raw seed, processed seed, packed seed, and rejected material

Seed processing carries its own categories: raw seed procured from growers, processed seed after cleaning and grading, packed seed ready for sale in labelled bags, and rejected or below-standard material that failed grading and is typically worth far less than processed seed, sometimes only feed or disposal value. Seasonal timing matters here too. Seed stock often has to move within a defined sowing-season window, after which unsold packed seed can lose significant value or have to be held over at real carrying cost until the next season. A stock statement that treats rejected material at the same value as certified packed seed, or that doesn't flag season-expiring stock, overstates DP in a way a stock audit will find.

The Lines I Check Before the Statement Goes to the Bank

The stock statement is the one part of running a CC account that punishes vagueness immediately. At our mill it is built from books our accountant updates every week, so the figures behind it are current rather than reconstructed under deadline pressure. The question I still ask myself before it goes is whether it would hold up if someone walked into the godown and counted.

If I had to name the lines where a rice mill's statement drifts most easily, it would be the byproducts. Bran and husk are real value, they tend to be sold off in smaller lots through the month, and lumping them into a vague line, or not updating them as they are sold, can overstate or understate the picture without anyone meaning to. Broken rice priced at whole-rice rates is the same error in another form. A statement that matches what a surprise physical count would show is worth far more than a slightly higher number that doesn't. How the statement fits into the whole season is in the season-by-season account of our mill's cash credit.

A Statement You Could Defend on Any Day

Build your stock statement from the same records you would need to survive an audit on any given day (physical counts, purchase invoices, sales invoices and GST filings), not from memory or optimistic rounding. Separate byproducts and lower-value material into their own honestly valued lines rather than folding them into a headline figure. Track receivable ageing against your bank's actual cut-off, not a general assumption. And treat a falling drawing power as information to investigate, not automatically as a problem: sometimes it simply means your stock sold down, which is exactly what a working-capital cycle is supposed to do.

Sources and scope

This guide describes commonly used drawing-power mechanics under RBI's public master circulars on lending and MSME credit (linked below), combined with first-hand experience of the monthly stock statement behind a rice-milling and seed-processing business's cash credit. The eligible items, margins, ageing cut-offs and exclusions in any real sanction are set by that borrower's own bank and sanction letter; this guide's calculation is a simplified illustration, not a universal formula. Last verified against the sources below on 1 August 2026.

Educational disclaimer

This article explains commonly used drawing-power concepts for educational purposes and does not represent any specific bank's calculation method. It is not personalised financial advice. Confirm your own facility's eligible stock items, margins, and ageing rules directly with your bank and sanction letter.