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GLOSSARYTERMS AS A CREDIT DESK USES THEM

Dilution (receivables)

What is dilution in invoice finance?

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BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED

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Dilution is the percentage of invoiced value that never converts to cash — eroded by credit notes, rebates, disputes, returns and adjustments rather than by debtor insolvency. It is the number non-specialists miss when they look at a receivables book, and the one that sets the honest advance rate: a ledger that quietly dilutes at eight percent cannot safely support a ninety percent advance, whatever its aging profile looks like. Financiers study dilution history before setting terms because it behaves like a trading characteristic of the business, not a one-off event.

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.

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