Guides / Receivables and ABL
How much can I borrow against my receivables?
You can borrow a percentage of your eligible receivables, not your total receivables, less any reserves the lender holds back, up to the limit of the line. Published industry references put advance rates on eligible commercial receivables at roughly 80% to 85%, but exclusions and reserves often leave availability well below 80% of the receivables on your books.
The short version of the formula
A receivables line is limited to a percentage of eligible collateral. That limit is called the borrowing base. For receivables alone, the math runs in four steps.
- Start with total receivables from your aging report.
- Subtract exclusions to get eligible receivables.
- Multiply by the advance rate set in the loan agreement.
- Subtract reserves. The result is the borrowing base.
You can draw the lower of the borrowing base or the line limit, minus what you have already borrowed. Each step is explained below.
Step one: total versus eligible receivables
Lenders only advance against receivables they expect to collect. Invoices outstanding 90 days or more are a common exclusion. Lenders also typically remove amounts owed by affiliates, balances offset by what you owe a customer, amounts above a single customer limit and some foreign or government accounts.
Our guide to borrowing base exclusions walks through each one. For federal contractors, government invoices usually count only once an assignment of claims is filed.
Step two: the advance rate
The advance rate is the contractual percentage a lender will lend against eligible collateral. The Secured Finance Network, the industry association for asset based lenders, describes advance rates on receivables as generally 80% to 85%. Other published references cite ranges as low as 60% to 80%. The rate in your agreement depends on the lender and on your collection history.
The gap between the advance rate and 100% is the lender's cushion. It covers invoices that are billed but never collected in full, plus the cost of collecting if the lender ever has to step in.
Why dilution matters as much as the rate
Dilution is the share of billed receivables that never turns into cash. It includes credits, returns, discounts, allowances, short pays and write offs. A common way to measure it is total adjustments divided by total receivables billed over a period.
Lenders read your dilution from your own history. Higher dilution usually means a lower advance rate or a reserve. A company with little dilution has a stronger case for a rate at the top of the range.
Step three: reserves
A reserve is an amount the lender subtracts from the borrowing base after the advance rate is applied. Reserves are used for risks the exclusions do not capture, such as customer disputes, concentration or dilution above an agreed level. Your agreement should say when a reserve can be added and how it is sized.
Step four: the line limit and what you can draw
The line limit is the most you can borrow, however large your receivables grow. Availability is the lower of the borrowing base and the line limit, less your outstanding balance. If the borrowing base falls below what you owe, you generally have to pay down the difference.
| Term | What it means | What moves it |
|---|---|---|
| Total receivables | Everything on your aging report. | Sales and collections. |
| Eligible receivables | Total receivables less exclusions. | Aging, customer mix, contras, affiliate and foreign balances. |
| Advance rate | The percentage lent against eligible receivables. | Dilution history, customer quality, lender policy. |
| Reserves | Amounts held back from the result. | Disputes, dilution above an agreed level, other risks the lender identifies. |
| Line limit | The most you can borrow under the agreement. | Negotiated at closing, changed by amendment. |
| Availability | What you can draw today. | The lower of borrowing base and line limit, less your balance. |
Definitions and thresholds are set in each loan agreement.
Illustrative example. Not a specific client or transaction.
A manufacturer has $1,500,000 in receivables, a $1,000,000 line limit, an 80% advance rate and $700,000 already drawn.
- $120,000 is 90 days or more past invoice date.
- $30,000 is owed by an affiliated company.
- $90,000 is the amount of the largest customer's balance above the concentration limit.
- $10,000 is owed back to a customer that is also a supplier.
Exclusions total $250,000, so eligible receivables are $1,250,000. At 80%, that supports $1,000,000. The lender holds a $40,000 dilution reserve, so the borrowing base is $960,000.
The borrowing base is below the $1,000,000 line limit, so it controls. With $700,000 drawn, the company can draw another $260,000. Total borrowing capacity is $960,000, or 64% of total receivables, not the $1,200,000 the owner expected from 80% of everything on the aging report.
How to get more out of the same receivables
- Collect old invoices first. Invoices past the aging cutoff add nothing to the borrowing base.
- Track and explain your dilution. Separate routine credits from one time events so the lender sees your true collection history.
- Clean up your aging report. Unapplied cash, duplicate invoices and old credits make receivables look worse than they are.
- Negotiate the terms that bind. A higher limit for a strong large customer, or clear rules on reserves, can be worth more than a higher advance rate.
- Size the line limit to your peak. If your receivables grow seasonally, a limit set at today's level can cap you just when you need cash.
To see how these pieces fit your own numbers, start with our asset based lending page.
Estimate your own borrowing base
Enter your receivables, aging and largest customer share to see an indicative range.
Sources
General information, not legal, tax or financial advice. Examples are illustrative. Terms vary by lender, and all financing is subject to lender approval.
What owners ask us first.
What advance rate will I get on my receivables?
It depends on the lender, your customers and your collection history. The Secured Finance Network describes receivables advance rates as generally 80% to 85%, and other references cite lower ranges. No rate is set until a lender reviews your receivables.
Is the borrowing base the same as my line of credit?
No. The line limit is the most you can ever borrow. The borrowing base is what your current collateral supports. You can draw the lower of the two, less what you already owe.
What is dilution?
The share of billed receivables that is never collected as cash, because of credits, returns, discounts, allowances or write offs. Lenders measure it from your history and use it to set the advance rate and any reserve.
What happens if my borrowing base drops below my loan balance?
The difference generally has to be repaid. That is why owners watch exclusions and collections closely, especially when a large customer starts paying slowly.
Can I borrow against inventory as well?
Many asset based lines include inventory, usually at a lower advance rate than receivables. Inventory rates vary widely by the type of inventory.
What do lenders exclude from a borrowing base?
The receivables lenders will not advance against, why each exclusion exists, and what an owner can fix before applying for an asset based line.
Read the guide →How the Assignment of Claims Act works when you finance federal receivables
What the Assignment of Claims Act requires, why lenders insist on it, and the filing mistakes that delay federal contractor financing.
Read the guide →