What are ineligibles in a borrowing base?

Ineligibility is not a judgement about your business. It is a judgement about how easily the lender could collect that particular asset if it had to.

Common receivable exclusions

Common inventory exclusions

Work in progress, consigned goods, slow-moving or obsolete stock, packaging and supplies, goods in transit without documents, inventory held at a location without a landlord or warehouseman waiver, and anything subject to a purchase money security interest.

Why it lands harder than expected

Ineligibles come off before the advance rate, so their effect is not reduced by it. Illustrative only: 100,000 of newly ineligible invoices at an 80% advance rate removes 80,000 of availability, not 20,000. A single customer crossing a concentration limit can therefore cost more availability than a bad sales month.

The cross-age cascade, worked

Illustrative only — receivables of $1,400,000, of which one customer owes $310,000. Of that balance, $96,000 has crossed the ageing cut-off, which is 31% of what they owe you.

Your agreement sets the cross-ageing threshold at 25%. Above it, the entire balance for that customer becomes ineligible, not merely the late part.

At an 85% advance rate, the availability removed is $310,000 at 85%, or $263,500, caused by $96,000 of late invoices. A ratio of 2.74 to 1.

The same $96,000 collected four days earlier costs you nothing whatsoever. That is the argument for treating the ageing cut-off as a hard operational deadline rather than an accounting convention, and for knowing at any given week which of your customers is closest to the threshold.

What you can actually do

• Bill the day the work is delivered. Unbilled work is worth nothing in a base.
• Collect before the aging cut-off rather than after it, and treat the cut-off date as a real deadline.
• Clear credit notes and disputes promptly instead of letting them age on the ledger.
• Get landlord and warehouse waivers signed early, because that exclusion is administrative rather than credit-driven.
• Negotiate at closing. Cut-off days, cross-aging percentages, concentration limits and a named-customer carve-out for a large, creditworthy account are all deal points, and they are much easier to change before signing than after.

How to check the lender's exclusions against your own ledger

The ineligibles report is produced by a person applying a definition to your ageing. It is frequently wrong at the margin, and the errors are recoverable if you find them inside the month.

Raise any discrepancy the same week, in writing, with invoice numbers attached. Raised late it reads as an argument about a number. Raised immediately it reads as a control environment, which is the thing the lender is actually forming a view about.

Beyond the obvious deal points

Cut-off days, cross-ageing percentages and concentration limits are where most negotiations stop. Four more that are rarely asked for and are often given:

Ask for all four. It costs nothing, and how a lender answers tells you how it intends to behave on the month the base tightens.

Ineligible is not the same as uncollectable

Worth saying plainly, because it changes how you respond. An invoice excluded from the base is still money owed to you, still collectable, and still yours. The lender has decided it will not advance against it, which is a judgement about its own recovery position in a bad scenario rather than a forecast about your customer.

That distinction matters in two places. When a large account goes ineligible on concentration grounds, the correct response is to keep collecting it normally — not to chase that customer harder than the rest, which is how good accounts get annoyed over a covenant they have never heard of. And when you forecast cash, forecast from the receivable rather than from the borrowing base. The two diverge most sharply at exactly the moment you are depending on the forecast.

Ask for the ineligibles report every month in the same format, and read the reason codes rather than the total. A total that holds steady while its composition churns is a different situation from a total that holds steady because nothing is moving, and only the codes tell you which one you are in.