Definition
Invoices that meet a funder's criteria for advancing.
Why it matters
Typically under 90 days old, undisputed and owed by creditworthy business customers.
Where it shows up in a deal
Eligibility is defined in the agreement as a list of exclusions rather than a list of qualifying invoices, and it is retested every time availability is calculated. During diligence the funder applies that list to your current aging so you can see what the facility will actually fund before you sign.
What it affects
- Common exclusions: invoices past an agreed age, cross-aged balances, affiliate sales, consumer accounts, foreign buyers, retainage, contra accounts and anything disputed.
- An invoice funded today can become ineligible next week, and the advance is recovered from the reserve.
- A contra account - a customer who is also your supplier - is usually excluded up to the amount you owe them.
- The exclusions list, not the advance rate, is where two similar-looking offers differ most.
A worked example
A $1,000,000 ledger carries $60,000 over 90 days, $75,000 cross-aged, $90,000 above the concentration cap, $25,000 intercompany and $30,000 of retainage. Eligible receivables are $720,000, and a 90% advance funds $648,000 - under 65% of the ledger.
The common mistake
Related terms
- Borrowing BaseThe maximum amount available under an asset-based line, calculated from eligible collateral.
- Aging ReportA report that groups unpaid invoices by how long they've been outstanding.
- Concentration LimitA cap on how much of a facility can be tied to a single customer.
- RetainageA percentage of a construction payment held until project completion.
Questions about how eligible receivables affects your facility?
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