What client concentration does to a staffing facility

Winning a big account is how a staffing agency grows, and how it finds out the funding facility has a governor on it.

The concentration limit

Almost every receivables facility caps single-debtor exposure. Above the cap the excess is ineligible: still your receivable, just no longer generating availability.

That catches people out. Grow the big account and total receivables rise while your borrowing base can fall, because more of the ledger sits above the cap: busier, more payroll to fund, less availability. Concentration is measured against the eligible base, so it moves when other clients pay — a quiet month elsewhere pushes your big client over the line without them doing anything.

The arithmetic, because it is not intuitive

Start with an $800,000 ledger: your largest client owes $160,000 and everyone else owes $640,000. The cap admits that client up to 20% of the eligible base, which works out at $160,000 against the other $640,000 — so the whole balance is eligible. Eligible base $800,000, availability $680,000.

Now win more work from the same client and take their balance to $360,000, with the rest of the ledger unchanged. Total receivables are $1,000,000. The cap still admits only $160,000 of that client, so the eligible base is still $800,000 and availability is still $680,000. You added $200,000 of receivables, hired against them, and generated no additional availability at all. The extra payroll comes out of your own cash.

Then that client slows down and cross-aging applies: enough of their invoices pass the age threshold, and all $360,000 goes ineligible, current invoices included. The eligible base drops to $640,000 and availability to $544,000 — a fall of $136,000 in the week you owe payroll on the people placed there.

Cross-aging, which does more damage

Find this clause before you sign. Cross-aging, sometimes called taint or contamination, says that if some proportion of a client's invoices pass a defined age, all of that client's invoices become ineligible, including current ones.

Combine it with concentration and one slow-paying large client can remove much of your borrowing base overnight, in the same week you have to make payroll for the workers placed there. The invoices are good. They are late, and the rule does not distinguish.

Ask three things: the aging threshold, the proportion that triggers it, and whether it is applied per client or across the ledger.

Measure concentration in gross profit, not revenue

A client at 30 percent of revenue but 15 percent of gross profit is a different exposure from one at 30 percent of both, because gross profit is what you lose if they go. Run both numbers and present both; an underwriter who sees you understand the distinction takes the rest of your reporting more seriously.

What else concentration affects

What can be negotiated

More than owners assume:

• A higher limit for named strong-credit clients, granted in writing at the outset rather than requested during a squeeze
• Cross-aging applied per client rather than across the ledger
• A carve-out or higher threshold for clients with documented long payment terms
• Advance notice before a limit is reduced
• A defined process for raising a limit as a client's history lengthens

Ask at term sheet stage. Once documented, they are hard to reopen.

How to see it coming

None of this arrives without warning, and the warning sits in reports you already produce:

• Your largest client's days sales outstanding drifting. Tracked weekly, two weeks of drift is the earliest signal you will get that cross-aging is in range.
• A quiet month elsewhere. Because concentration is measured against the eligible base, a slow month from your other clients raises your big client's share without them doing anything at all. Watch the ratio, not the balance.
• A large placement starting. Payroll begins immediately and the first invoice is a week or two behind it. Model the availability effect before you accept the order, not after the first Friday.
• Credit memos and rebates. Dilution reduces the eligible base too, and a volume rebate agreed with your biggest client lands in the same calculation.

Run a borrowing base yourself, weekly, on your own spreadsheet, using the facility's actual rules. If your number and the funder's disagree, you want to find that out on a Tuesday rather than on a payroll Thursday.

What to have ready

• Aged receivables by client, with days sales outstanding per client
• Concentration by revenue and by gross profit, both
• Twelve months of payment history by client
• Contracts showing agreed terms, including any MSP or VMS arrangement
• Credit information on your largest clients
• Your pipeline, showing how concentration should change

What to ask, and what to refuse

Ask for the concentration limit, the cross-aging threshold and trigger, and how the eligible base is calculated, in writing, before paying any diligence fee. Ask what notice you get before a limit changes.

Refuse a facility whose cross-aging rule you have not read. Refuse to build a growth plan around one client without a written limit that accommodates it. And refuse a large account on extended terms before confirming your funder treats it as eligible — an ineligible receivable is a payroll you fund yourself.