Glossary · underwriting

Cross-aging

Also called cross-age rule, taint rule, contamination rule.

The eligibility rule that disqualifies every invoice from a customer once too large a share of that customer's balance has gone past due, removing current invoices along with the late ones.

Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.

What it means

Collateral does not erode gradually under this rule. It disappears in a block.

The mechanism

A typical formulation: if more than 25 percent of a debtor's total outstanding balance is more than 90 days old, all of that debtor's invoices become ineligible, including invoices issued last week. The percentage and the bucket are set in the eligibility schedule of the factoring or asset-based agreement and vary between 25 and 50 percent in practice.

The logic is sound. A customer sitting on old invoices is a credit event, not a filing quirk, and it is not rational to advance against new invoices to a debtor who is not paying the old ones. Treating the debtor relationship as one exposure rather than as a set of independent invoices is what a lender would do with its own money.

What varies, and matters

  • The trigger percentage, and whether it is measured against that debtor's balance or against your whole ledger
  • Which clock runs. Ninety days from invoice date and 90 days from due date are very different rules on net-60 terms
  • Whether affiliated debtors are grouped, so a parent and three subsidiaries are treated as one customer
  • Whether the funder can waive it case by case, and whether a waiver has to be renewed each reporting period

Where you see it

In the ineligibles column of your borrowing base certificate, usually without warning, because nothing about the current month's sales predicted it.

Where this one catches people

Cross-aging is what converts one slow-paying customer into a liquidity event. It also compounds with the concentration cap: your biggest customer is the one most likely to breach the cap and the one whose ageing does the most damage when the taint rule fires, so both rules hit the same account at once.

Check which clock runs before you sign. Under a rule measured 90 days from invoice date, a customer on net-60 terms is tainting your collateral after 30 days of lateness. Measured 90 days past due, the same customer has 150 days from invoice. Funders describe the friendlier version in conversation and write the other into the schedule, and the difference is worth negotiating harder than the advance rate.

Worked through

Illustrative. One customer owes you 400,000 across four invoices: 120,000 current, 90,000 at 30 days, 80,000 at 60 days, and 110,000 at 95 days.

The over-90 balance is 110,000, which is 27.5 percent of the 400,000 total.

Under a 25 percent cross-age rule the entire 400,000 becomes ineligible, not just the 110,000 that is late. At an 85 percent advance rate that strips 340,000 out of your borrowing base in a single certificate.

Had the trigger been set at 30 percent, nothing would have happened. Had the customer paid 30,000 against the old invoice before the reporting date, the over-90 balance would be 80,000 of 370,000, or 21.6 percent, and again nothing would have happened. Watching the ratio in the week before the certificate is due is not gaming the facility; it is the only way to see the cliff coming.

Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.

Where you will meet this term

Business Line of Credit Invoice Financing Asset-Based Lending

Read next

Advance rateThe share of an asset's eligible value a funder will put up front, used in factoring, asset-based lending and… Aging report (A/R aging)A schedule of unpaid invoices sorted by how long they have been outstanding, and the first document any recei… AvailabilityWhat you can actually draw right now: the borrowing base less reserves, less loans outstanding, less letters … Borrowing baseThe pool of eligible collateral, each class multiplied by its own advance rate and reduced by reserves, that … ConcentrationHow much of a business's revenue or receivables depends on a single customer, and the cap funders place on ho… Days sales outstanding (DSO)The average number of days a business waits to get paid after invoicing, calculated from the receivables bala… DilutionThe gap between what a business invoices and what it eventually collects, caused by credits, returns, allowan… Eligible receivableAn invoice that counts toward the borrowing base because it passes the lender's tests on age, customer, conce… Ineligible receivablesInvoices a factor or asset-based lender excludes from the borrowing base entirely, so they generate no availa… Invoice factoringSelling receivables to a third party at a discount for immediate cash, with the buyer taking over collection …

Cross-aging — common questions

What does cross-aging mean?

The eligibility rule that disqualifies every invoice from a customer once too large a share of that customer's balance has gone past due, removing current invoices along with the late ones.

Where does cross-aging catch people out?

Cross-aging is what converts one slow-paying customer into a liquidity event. It also compounds with the concentration cap: your biggest customer is the one most likely to breach the cap and the one whose ageing does the most damage when the taint rule fires, so both rules hit the same account at once.

Is cross-aging the same as an interest rate?

Cross-aging is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.

Which products does cross-aging apply to?

Business Line of Credit, Invoice Financing, Asset-Based Lending.

Is there a worked example of cross-aging?

Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.

What else should I read alongside cross-aging?

Advance rate, Aging report, Availability, Borrowing base, Concentration.

Has this definition been checked?

Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.

Is this legal advice?

No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.

Can I suggest a term?

Yes — [email protected]. The glossary grows from what people are actually shown in contracts.