Building a Borrowing Base Certificate Your Bank Won't Kick Back

Your credit agreement, not general accounting practice, defines eligibility, and it's usually stricter than you'd guess. Common exclusions include receivables owed by an affiliate, anything past a set number of days from invoice date, concentration limits capping how much of one customer's balance counts, and foreign receivables unless they're insured or backed by a letter of credit. Read the eligibility definition in your own agreement before you build the certificate, since banks vary this language more than borrowers expect.

Some agreements also exclude receivables from customers who themselves owe you money on a separate contract, since a right of offset can complicate collection. Flag any customer relationship like that to your bank early, since it's easier to negotiate a carve out before signing than to argue about it once a certificate is already being reviewed.

Most accounting systems bucket aging by thirty day increments off the invoice date, which usually matches what a bank wants, but double check whether your agreement measures from invoice date or due date, since those produce different numbers for anyone offering net thirty or net sixty terms. Reconcile the aging report total against your general ledger AR balance before you submit anything; a mismatch here is one of the fastest ways to trigger a field exam.

Past due receivables beyond the threshold in your agreement, disputed invoices, credit memos not yet applied, and bill and hold arrangements where goods haven't actually shipped all typically get carved out as ineligible. Concentration limits are the one that surprises founders most: if one customer makes up a large share of your receivables, the excess over the cap simply doesn't count toward the base, even though the invoice is perfectly current and collectible.

How many payables days you're carrying relative to other companies in your industry¹ affects how tight your working capital cycle already is before the borrowing base formula even applies. A business stretching payables further than its industry peers is already leaning on suppliers for financing, which means less room to absorb a sudden drop in the borrowing base if a large customer's invoices age past the eligibility cutoff.

Pull the AR aging report and reconcile it to the general ledger. Strip out ineligibles using your agreement's exact definitions, not a generic template. Apply concentration limits customer by customer. Calculate the advance rate against eligible collateral and compare it to your current outstanding balance. Sign and submit before the deadline your agreement specifies, since a late certificate can itself be treated as a covenant default in some agreements even if the underlying numbers are fine.

Keep a copy of every certificate alongside the underlying aging report and reconciliation that supported it, filed together rather than scattered across email threads. When a field exam does happen, and most asset based lines schedule one periodically as a matter of course rather than as a sign of trouble, having a clean paper trail for each month turns what could be a multi day back and forth into a quick file review.

Run the close in this order each month:

1. Pull the AR aging report and reconcile its total to your general ledger balance.
2. Strip out ineligibles using your credit agreement's exact definitions, not a generic template.
3. Apply concentration limits customer by customer and remove any excess over the cap.
4. Calculate the advance rate against eligible collateral and compare the result with your current outstanding balance.
5. Sign and submit before the deadline your agreement specifies, since a late certificate can cause a problem on its own.