One customer can fill the ledger without filling the loan.
BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED · 7 MIN READ
Ask why a lender will not advance against every good invoice, and the answer is often a concentration limit. Inside a receivables or asset-based facility, debt owed by one customer counts towards the borrowing base only up to a set share of the ledger; the balance above that share earns no funding. Across a bank's whole book, ceilings on an industry, a region or a borrower group do the same work for the bank itself. Both rest on one observation: a portfolio that looks large can still depend on a single outcome.
BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.
Issue 02 — Aoraki Trade Exports. Paid in USD, costs in NZD, asking for a NZ$6m multi-currency facility. The MD won't say which currencies. Your call first, then the senior banker's.
PART OF Trade Loan
A lender advancing against invoices is relying on a crowd. If two hundred customers owe the money, some will pay late and a few will fail, and the advance rate leaves a margin for that. If one customer owes 40% of the ledger, the security has changed character. It is now largely a claim on one company, with some others alongside, and a margin built for a spread of debtors no longer fits. The US Comptroller's handbook calls this single-party risk.
The same reasoning runs one level up. A bank decides how much of its book it will hold in an industry, a region or a borrower group, and watches how close each total sits to its ceiling. A sector at its ceiling can stop taking new loans however good the next applicant is, so a sound business can be declined for a reason that has nothing to do with it.
Four drafting choices move the result. The first is what the percentage is measured against: the whole ledger, the eligible ledger, or the ledger after the limit has been applied. The second is who counts as one debtor; many agreements add together companies in the same group. The third is whether stronger names get more room, for example a rated company or an insured one. The fourth is what happens to the excess. It is commonly treated as ineligible, though a lender may instead keep it in and advance less against it.
One detailed public description from a regulator is American. The Comptroller's handbook normally treats a single account of 10% or more of receivables as a concentration, and says a bank should limit such accounts to 10% to 20% of the borrowing base or reduce the advance against them. That is one supervisor's guidance to US banks. A facility in New Zealand, Australia or the UK sets its own percentage in the agreement.
A maker of private-label soap and shampoo, constructed for this page like every figure in it, has a debtor ledger of US$12.0m, of which US$1.0m is ineligible as overdue or subject to contra. One supermarket chain owes US$4.4m. The facility advances 80% of eligible debts and limits any one debtor to 25% of the eligible ledger. Both percentages belong to the example and are not a market norm. Amounts in US$m.
The soap maker's best customer has cost it US$1.32m of funding. The chain pays on time, so from the borrower's side this looks perverse. Now suppose the chain fails owing the full US$4.4m, the facility is fully drawn, and every other eligible debt is collected at face value.
The limit does not remove the loss. It reduces it by the US$1.32m the lender declined to advance. The definition matters as well. If the agreement measures the 25% after the limit has been applied, the chain's own excess is left out of the figure it is measured against and the cap comes out lower:
Same ledger, same 25%, and US$0.44m less funding, because of how one sentence in the definition was drafted.
Customer concentration is a fact about the borrower: how much of its revenue comes from a few customers over a year. A concentration limit is the lender's response, tested on the ledger as it stands. A business can sit inside the limit on the day and still depend on that customer for most of its profit. Eligible receivables is the test that comes first. It asks whether an invoice is good enough to fund at all, and the concentration limit then asks how many of the good ones sit with one name.
Above the borrower sit the bank's own single-name limit and the regulator's rules. The Basel large exposures standard caps a bank's exposure to one counterparty or connected group at 25% of Tier 1 capital; Australia and the UK apply their own versions, while New Zealand's connected exposures policy is aimed at a bank's exposures to its own connected persons. A mid-market borrower seldom approaches a regulatory ceiling. What it meets is the bank's internal limit, set by the bank's own appetite and not published.
DEFINED IN ONE PARAGRAPH → · THE SINGLE-NAME LIMIT → · THE BORROWING BASE →
The limit decides what a growing business can actually draw. A cash flow forecast that assumes 80% of the ledger will fall short by whatever sits above the cap. It also bends the reward for winning more from a large customer. If the soap maker's chain orders enough to lift its balance by US$2.0m, the eligible ledger becomes US$13.0m, the cap US$3.25m and the excess US$3.15m. The borrowing base rises from US$7.48m to US$7.88m: US$0.40m of new funding against US$2.0m of new invoices, where a spread ledger would have given US$1.6m.
Because the cap is a percentage, it also moves when the rest of the ledger shrinks. In a slow month for smaller customers the cap falls, and the borrowing base drops twice: once for the lost invoices and again for the lower cap. The negotiation usually turns on who the debtor is. A borrower may win a higher limit for a strong or insured customer, and the lender will want to see that name's credit and payment record before agreeing.
PRODUCT FILE: INVOICE FINANCE → · HOW BANKS MANAGE CREDIT RISK →
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