The Ledger Says $6 Million. The Borrowing Base Says Half.

Every borrower asks what the advance rate is. It is the last calculation performed and the least interesting one, because by the time it applies, the decisions that matter have already been made.

Take an illustrative case. A staffing firm carries $6.0 million of accounts receivable. Every invoice is real, every client is paying, nothing is in dispute. The term sheet says 85 percent against eligible receivables, so the owner budgets on roughly $5.1 million of availability.

The facility delivers $3.04 million. About 51 cents on the ledger dollar.

Nothing went wrong. The gap is entirely in the word “eligible,” and it was determined before the advance rate was applied to anything.

What comes out first

A borrowing base is the ledger less a defined set of exclusions. They are standard across the industry and each has a rational basis in collection risk rather than in lender appetite.

Past dues. Invoices beyond roughly three times standard terms, so 90 days from invoice date on net 30. Here, $420,000.

Contra accounts. Where a customer is also a supplier, they can set off what they owe against what you owe them. The ineligible is the lower of the payable or the otherwise eligible amount. Here, $150,000.

Foreign and federal. Foreign receivables are excluded on jurisdictional grounds, since enforcement is impractical. Federal receivables are lendable only with an assignment of claims in place, which most borrowers have never filed. Here, $170,000 together.

Concentration. More on this below, because it is the largest single item.

Cross-aging. And this one is worth its own section, because almost nobody expects it.

The rule that removes good invoices

Cross-aging says that if a meaningful share of one customer’s balance is past due, the entire balance from that customer becomes ineligible. Not the past-due portion. All of it.

The trigger is lower than people assume. Twenty percent is a common threshold.

So a client owing $500,000, of which $110,000 has aged past 90 days, is at 22 percent. Over the line. All $500,000 leaves the borrowing base, including $390,000 of current, undisputed, perfectly collectable invoices.

The logic is defensible from the lender’s side: a customer who has stopped paying part of a balance is a customer who may stop paying the rest, and the aging is the earliest signal available. But the effect on a borrower is that one slow-paying account contaminates its own good paper, and $110,000 of slow money removes half a million of collateral.

Your best customer is the largest deduction

The staffing firm’s biggest client is 38 percent of the ledger, or $2.28 million. The facility caps concentration at 20 percent, which is $1.2 million. The excess, $1.08 million, is ineligible.

That single line is nearly half of all the deductions, and it exists because the client is large and growing. The account the business has worked hardest to win is the one the borrowing base penalises most, and winning more of it makes the position worse rather than better.

Only now does the advance rate apply

Ineligibles total $2.2 million, so eligible receivables are $3.8 million.

The 85 percent advance rate applies to that, not to the ledger. And it does not survive intact either: lenders take a dilution reserve for the gap between invoiced and collected amounts, covering credit memos, billing errors, rebates and returns. A dilution adjustment pulling the effective rate to 80 percent gives $3.04 million.

Two numbers, both accurate, describing the same business: $5.1 million if you apply 85 percent to the ledger, $3.04 million if you apply the facility as written.

What actually moves it

The ledger is not fixed, and most of the deductions respond to work done before the field exam rather than after the term sheet.

Chase the accounts sitting just over the cross-age trigger first, because the return is disproportionate. Clearing $110,000 of past due on that one client restores $500,000 of collateral, which is four and a half dollars back for every dollar collected. No other collection effort in the business pays like that.

File the assignment of claims on federal receivables. Net the contra positions down. And treat the concentration cap as a negotiable term rather than a constant, because it is one, particularly where the concentrated customer is investment grade or the relationship is long and documented.

How Thalos Capital Approaches This

Thalos Capital works borrower-side on asset-based facilities from $50 thousand to $100 million and above, across the United States. The useful work happens before a lender builds the base, not after they present it.

That means running the ineligible calculation on the company’s own aging first, so the availability number is known rather than discovered; identifying which deductions are structural and which are fixable in the weeks before a field exam; and taking the collateral to sources whose eligibility definitions actually differ, because they do. Cross-age triggers, concentration caps and dilution treatment are not uniform, and the same ledger produces materially different availability depending on whose base it is calculated in.

A business that walks into a facility knowing its ledger yields 51 cents has a planning problem it can work on. One that budgeted 85 and finds out at closing has a cash problem it cannot.

Most financing situations have more options than the borrower initially sees. A conversation is enough to map them. Submit your financing request at https://thaloscapital.com/contact.