Tolling
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A finance provider funds raw material while a processor turns it into a finished product, and the sale of that product repays the finance.
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01 · In plain words
You keep owning your material while a processor turns it into a product for a fee
In , the owner of a raw material sends it to a processor, such as a refinery or a factory. The processor turns it into a finished product and hands it back. The owner pays the processor a fee for the work, called a tolling fee (Century Aluminum, SEC filing).
Tolling finance is money lent against that material while it is processed. The Global Supply Chain Finance Forum (GSCFF) calls tolling a form of . The finance lets raw materials go to a third party for refining or manufacturing before they are sold on (GSCFF).
The finance provider takes a legal claim over the goods and some control over them (GSCFF). That claim can rest on a or warrant for the stored goods, or the owner can sign its rights in the goods over to the finance provider.
Who is involved
- The material owner, such as a trader, owns the raw material and the finished product, and pays the tolling fee.
- The processor, also called the toller, converts the material for the fee.
- The finance provider funds the raw material while it is processed.
- Sometimes a warehouse firm or a watches over the goods for the finance provider.
- The end buyer buys the finished product.
02 · How it works
Six steps take the material from purchase to processing to the sale that repays the finance
Figure 1 · Interactive
Tolling finance, step by step
Read down the steps. The last step is where the finance provider is repaid.
Source: GSCFF, Standard Definitions: Loan or Advance against Inventory; Century Aluminum, Form 10-K for 2013. The order of steps is our summary of these two sources.
03 · What it means for you
The owner gets a finished product without owning a plant, and the processor earns a fee without owning the goods
Figure 2 · Interactive
What tolling means for each side
Choose your side of the deal.
04 · Worked example
On $1 million of raw material, an example 80% loan costs $8,333.33 in interest over 75 days
This example uses round, made-up numbers. The owner sends $1,000,000 of raw material for processing. The finance provider advances 80% of that value at 5.00% a year, on a 360-day year. Processing takes 45 days and the buyer pays 30 days later, so the advance runs for 75 days. The tolling fee is $100,000 and the finished product sells for $1,250,000.
Figure 3 · Illustrative
Tolling finance on $1,000,000 of raw material, 75 days
Illustrative inputs. The owner's share is highlighted.
Made-up inputs, worked out by our checking script. Real rates, fees and timings will differ by deal.
05 · When to use it
Tolling suits owners of raw material who want a processed product, and processors that earn a fee
Good fit when
- You own raw material and want a processed product, without owning the plant (GSCFF).
- You run a plant and want to earn a fee for converting material you do not buy (Century Aluminum).
- The goods can be tracked and checked while they are processed.
Another tool may suit better when
- The goods cannot be tracked through processing. The finance provider needs some control over the goods (GSCFF). Look at a trade loan.
- The goods are held in storage and not processed. Look at inventory finance or warehouse finance.
- The deal is a larger commodity flow repaid from sales. Look at structured commodity finance.
06 · Rules and a real case
Tolling rests on contracts, and a public filing shows how one works
The terms of a tolling deal sit in the contracts: the tolling agreement, the finance and security agreements, and the sale contract for the product. The ICC lists the GSCFF Standard Definitions, dated January 9, 2017, as the common terms for this kind of finance (ICC).
Two model laws can matter, in the countries that adopt them. The (2024) lets goods in a warehouse be used as security through warehouse receipts (UNCITRAL). The UNCITRAL Model Law on Secured Transactions (2016) covers security over goods and other movable property (UNCITRAL).
A real case. Century Aluminum's annual report for the year ended December 31, 2013, filed with the US Securities and Exchange Commission in 2014, describes tolling at its Grundartangi smelter. Glencore provides alumina and receives primary aluminum in return for tolling fees based on the price of primary aluminum. In 2013 the smelter also tolled about 263,000 tonnes of alumina for BHP Billiton. The filing shows the tolling deal itself, without the finance behind it (Century Aluminum, Form 10-K).
Summary
Tolling finance funds your material while it is processed, and the product sale repays it
The owner keeps the material and the finished product, and pays the processor a fee. The finance provider funds part of the material's value and keeps a claim over the goods. The sale of the product repays the finance. The is short. The lender reviews the credit line once a year.
Related guides: Inventory finance; Structured commodity finance; Title and ownership in commodity trade. Related cards: Inventory finance; Warehouse finance (warehouse receipts); Structured commodity finance. Every term is in the Trade Finance Glossary.
Sources
- Global Supply Chain Finance Forum (ICC, BAFT, EBA, FCI, ITFA), Standard Definitions: Loan or Advance against Inventory, 2016. Supports: tolling as a form of inventory finance, security and control over goods, the margin of protection, monitoring and audit, short tenor
- Century Aluminum Company (SEC EDGAR), Form 10-K for fiscal year ended December 31, 2013, 2014. Supports: the tolling fee, the owner keeping the product, the 263,000 tonnes tolled for BHP Billiton, the real case
- International Chamber of Commerce, Standard Definitions for Techniques of Supply Chain Finance (publication page), January 9, 2017. Supports: the common terms
- UNCITRAL, UNCITRAL - UNIDROIT Model Law on Warehouse Receipts (2024), 2024. Supports: goods in storage used as security
- UNCITRAL, UNCITRAL Model Law on Secured Transactions (2016), 2016. Supports: security over goods
- Alternative Reference Rates Committee, SOFR "In Arrears" Conventions for Syndicated Business Loans, July 22, 2020. Supports: the 360-day year in the worked example
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