An asset-based lender reads the aging to judge how much of your receivables it could collect without you. It checks first that the aging ties to the balance sheet, then how much sits in each past-due bucket and whether that is growing, which customers are slow enough to cross-age, how concentrated the book is, which customers are also suppliers, and whether credit balances or unapplied cash are hiding aged items. A reconciled aging with its anomalies explained raises eligible receivables before any term is negotiated.
- First test
- Does the aging total tie to receivables on the balance sheet?
- Age basis
- Lenders usually measure from invoice date, not due date
- Aging cut-off
- Typically more than 90 days past invoice is ineligible
- Concentration
- Commonly capped at 20% to 25% of eligible receivables per customer
- What to send
- Aging by customer and invoice, with days outstanding, as of month-end
Why the aging comes first
A cash-flow lender starts with earnings. An asset-based lender starts with collateral, and for most businesses that means receivables. The aging is the only report that shows the lender, customer by customer and invoice by invoice, who owes the business money and for how long. Everything the lender later does, from the first borrowing base estimate to the field exam, is built on it.
That makes the aging a first impression in the literal sense. A lender that receives an aging which does not tie to the balance sheet, is aged from the wrong date and is full of unexplained credits will assume the worst about every unexplained item, and price the collateral accordingly. A lender that receives a reconciled aging with notes on the anomalies starts from a higher estimate of eligible receivables and has fewer reasons to move it down.
Test one: does it tie?
The first thing a lender does with an aging is compare its total to accounts receivable on the balance sheet for the same date. If they match, the aging is presumed complete. If they do not, the lender cannot tell whether receivables are overstated, understated or simply badly kept, and it will say so. The usual reasons for a gap, and what each tells a lender:
| Reconciling item | What it usually is | How a lender reads it if unexplained |
|---|---|---|
| Unapplied cash | Payments received but not matched to invoices | Paid invoices still showing as aged; the aging overstates past-dues |
| Unbilled or accrued revenue in the receivables account | Work done but not yet invoiced, booked to receivables | Receivables that do not exist as invoices and cannot be collateral |
| Allowance for doubtful accounts netted in the ledger | A reserve the aging does not show | Management already expects some of the aging not to be collected |
| Invoices dated after the aging date | Billing cut-off errors | Possible pre-billing, which examiners treat as a control failure |
| Manual journal entries to receivables | Adjustments outside the billing system | Receivables the lender cannot trace to a customer |
| Intercompany balances | Amounts owed by related companies | Affiliate receivables, which are ineligible |
The fix is a one-page reconciliation sent with the aging: aging total, each reconciling item with a sentence of explanation, balance sheet total. It is the single most useful page a borrower can add, and the one most often missing.
Past-due buckets, and the direction they are moving
Agings group invoices by age, usually current, 31 to 60, 61 to 90 and over 90 days. The lender reads the buckets in two ways. The first is the obvious one: receivables more than 90 days past invoice are typically ineligible, so the over-90 column is lost collateral. The second matters more for the credit decision: the trend. An aging where the 61-to-90 bucket has grown for three months tells the lender what next quarter's over-90 column will look like.
The date the aging is measured from changes everything. Most accounting systems can age by due date or by invoice date. Most asset-based agreements measure eligibility from invoice date. A customer on long payment terms whose invoices look current by due date can already sit in the 61-to-90 bucket by invoice date. Send the aging by invoice date, and if your terms are long, say which customers are on them and why. Days sales outstanding is the summary figure lenders will compute alongside it.
Send the aging by invoice date. An aging by due date will be re-aged by the lender, and the difference will look like something you were hiding.
Reading the aging customer by customer
Once the total is trusted, the lender reads the top of the customer list, because that is where the collateral is. Take a summary aging for a business with receivables of 2,000 (in thousands):
| Customer | Current | 31–60 | 61–90 | Over 90 | Total | What the lender notes |
|---|---|---|---|---|---|---|
| A | 420 | 200 | 60 | 20 | 700 | Over a third of the book: concentration excess |
| B | 40 | 30 | 20 | 90 | 180 | Half its balance is over 90: the whole balance may cross-age |
| C | 110 | 40 | 0 | 0 | 150 | Also a supplier, owed 60: contra |
| D | 0 | 0 | 30 | 50 | 80 | A company under common ownership: affiliate |
| E | 120 | 0 | 0 | 0 | 120 | A federal agency: ineligible unless assigned under federal assignment-of-claims rules |
| F | 0 | 0 | 0 | -30 | -30 | Credit balance sitting in the over-90 column |
| All others | 580 | 160 | 40 | 20 | 800 | Spread across many customers: the best collateral on the page |
| Total | 1,270 | 430 | 150 | 150 | 2,000 |
The page tells the lender far more than its total. Customer A's size means a concentration cap, commonly 20% to 25% of eligible receivables, will remove a large slice of its balance, and its 60 in the 61-to-90 bucket is worth a question. Customer B shows how cross-aging works: with half its balance aged out, many agreements would remove its current invoices too, taking 180 out of the base for 90 of old invoices. Customer C owes 150 but is owed 60, and the lender will assume it can offset. D and E are excluded on who they are, not how they pay.
Customer F is the easiest to miss. A credit balance in the over-90 column reduces that column's total, so the aging understates what is past due: the true over-90 debit balances here are 180, not 150. Lenders treat past-due credit balances as an ineligible and add them back, so the netting does not hide aged invoices. A long list of small credit balances also suggests unapplied cash or credits never matched to invoices, which feeds into dilution.
The anomalies examiners look for
Beyond the standard categories, experienced lenders scan an aging for patterns that suggest the collateral is not what it seems. None of these is proof of anything, but each will be asked about:
- A cluster of large invoices on the last day of the month. Possible pre-billing: invoicing before goods ship or work is done, to lift the month-end base.
- Round-number invoices. Deposits, progress billings or estimates rather than invoices for delivered goods or completed work.
- Customers with the same address or officers as the business. Affiliates that were not flagged.
- Balances that never move. An invoice that has sat in the same customer account for many months with no payment and no dispute usually means a dispute nobody recorded.
- Retainage and progress billings mixed in with trade receivables. Common for contractors, and usually ineligible; see contract financing for how lenders handle them.
- Foreign addresses. Often ineligible without credit insurance or a letter of credit, as foreign receivables in a borrowing base explains.
- A catch-all customer. Accounts named miscellaneous, cash sales or sundry customers, which a lender cannot verify.
The field examiner will later test the aging directly, sampling invoices back to shipping documents and signed delivery receipts and forward to the cash that paid them. Anything that looks odd on the page is likely to be in the sample.
Preparing the aging before it goes out
Most of what lowers eligible receivables in a first review is housekeeping that can be done in advance. Before the aging goes to any lender:
- Run it as of month-end, by customer and invoice, aged from invoice date, with days outstanding shown.
- Apply unapplied cash and match open credit memos to the invoices they relate to.
- Write off what will not be collected; dead invoices cross-age the rest of that customer's balance.
- Reconcile the total to the balance sheet and send the reconciliation with it.
- Flag affiliates, government and foreign customers, and customers who are also suppliers, with the payable owed to each.
- Add a short note on each large past-due balance: disputed, on agreed extended terms, or paid since month-end.
- Send the AP aging alongside, so contra accounts can be identified from your data rather than guessed.
Transparent's line of credit checklist starts with this report, the AR aging by customer with days outstanding, followed by the AP aging, balance sheet, P&L, the debt schedule showing existing liens and, where inventory is in the base, the inventory report. Of the 1,800+ lenders in Transparent's book, 235 write asset-based loans and lines, and their eligibility definitions differ enough that the same aging can support noticeably different availability from one lender to the next. A clean aging makes that comparison straightforward. How a borrowing base works covers what happens to the aging after the lender reads it, and preparing a borrowing base certificate covers the monthly version.
Common questions
- Should I send my aging by invoice date or due date?
- Invoice date, unless the lender asks otherwise. Most asset-based agreements measure eligibility from invoice date, and a lender will re-age a due-date aging itself. If some customers are on long terms, say so separately.
- Why does the lender want my payables aging too?
- To find customers who are also your suppliers, whose balances can be offset, and to see whether suppliers or taxes are being stretched. Both affect how much of your receivables a lender will count and what reserves it may take.
- What is a credit balance on an aging, and why does it matter?
- A customer account that shows money owed to the customer, usually from an overpayment, a return or an unapplied credit. Past-due credit balances net against past-due invoices and understate them, so lenders add them back as an ineligible.
- My aging does not match my balance sheet. Is that a problem?
- Only if it is unexplained. Most differences come from unapplied cash, unbilled revenue booked to receivables or an allowance for doubtful accounts. Send a one-page reconciliation with the aging listing each item.
- Can a clean aging get me a higher advance rate?
- It can help keep you at the higher end of the typical range and reduce ineligibles. Advance rates also depend on dilution, customer quality and the lender, but an aging that ties and explains its anomalies removes reasons to cut them.