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Concentration
Also called customer concentration, debtor concentration, concentration limit.
How much of a business's revenue or receivables depends on a single customer, and the cap funders place on how much of that exposure they will finance.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
What it means
One debtor's share of the receivables ledger, or of monthly revenue, is the measure. Funders cap it because the risk is not diversifiable: if the dominant customer stops paying, disputes an invoice or fails, the collateral and the business fail at once.
In factoring and asset-based lending the cap is explicit. Anything above a stated percentage of the eligible ledger for one debtor is excluded from the borrowing base, whatever its quality. Caps are set per client, and are raised for genuinely strong debtors such as investment-grade companies or government agencies, and lowered for weak or unrated ones.
In cash advance underwriting the same idea appears through deposit analysis. Two or three large deposits a month from one payer reads as concentration risk, and it usually reduces the offer even when the volume is impressive.
The effect on the business is a ceiling on growth financing precisely when the largest customer is growing fastest. A distributor whose biggest account doubles finds its excess concentration doubling too, and its availability rising much less than its ledger.
Where this one catches people
Concentration caps apply to the eligible ledger, not to your total sales, and they bite hardest just as a business succeeds with a major account. Diversification is treated as a credit strength for a reason, and businesses that build around a single anchor customer are underwritten on that customer's credit whether or not they realize it.
Worked through
Ledger of 1,000,000 with a 25 percent concentration cap. One debtor owes 400,000; only 250,000 counts as eligible and 150,000 is excluded. At an 85 percent advance rate that excluded slice costs 127,500 of availability, on invoices that are perfectly good.
Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.
Where you will meet this term
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Concentration — common questions
What does concentration mean?
How much of a business's revenue or receivables depends on a single customer, and the cap funders place on how much of that exposure they will finance.
Where does concentration catch people out?
Concentration caps apply to the eligible ledger, not to your total sales, and they bite hardest just as a business succeeds with a major account. Diversification is treated as a credit strength for a reason, and businesses that build around a single anchor customer are underwritten on that customer's credit whether or not they realize it.
Is concentration the same as an interest rate?
Concentration is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does concentration apply to?
Merchant Cash Advance, Working Capital, Invoice Financing, Asset-Based Lending.
Is there a worked example of concentration?
Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.
What else should I read alongside concentration?
Accounts receivable, Advance rate, Aging report, Borrowing base, Credit box.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.