Intercreditor Lien Carveouts Supporting Supply Chain Finance Borrowing Base Expansion
Intercreditor lien carveouts expand asset-based availability by isolating supplier-financed collateral through structured subordination and reserve caps.
Ineligible Accounts Receivable
Meaning
Customer invoices that do not meet the security standards of a lender are excluded from the calculation of a company’s borrowing base. The category of ineligible accounts receivable includes unpaid bills that are overdue, disputed, or owed by financially distressed customers. Lenders subtract these assets to ensure the loan is backed only by high quality collateral.
This calculation occurs during the preparation of the monthly borrowing base certificate.
Credit Exclusions
Standard exclusion rules apply to accounts that are more than ninety days past due from the invoice date. When an invoice falls into this category, the ineligible accounts receivable are removed from the eligible pool. Invoices from foreign buyers without export insurance are also excluded.
Risk Assessment
Concentration limits prevent a borrower from relying too heavily on a single customer for its revenue. If one debtor represents more than twenty percent of the total receivables, the excess portion is marked as ineligible. This rule protects the lender from the default of a single major client.
Borrowing Limits
Subtracting these invoices reduces the maximum amount of money a company can borrow under its credit line. It forces the borrower to maintain disciplined collection practices. This discipline ensures that the company does not run out of working capital due to slow paying customers.