Asset-Based Lending (ABL) — Revolving Facility Secured by Receivables (Borrowing Base)
Recording draws and repayments on a revolving credit facility secured by accounts receivable — with the borrowing base calculation determining the maximum available credit.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Cash (ABL Revolving Credit Draw) | Asset (+) | 45,000,000.00 | - |
| ABL Revolving Credit Facility — Short-Term Debt (Secured by AR) | Liability (+) | - | 45,000,000.00 |
💡 Accountant's Note
Asset-Based Lending (ABL) is the most common form of working capital financing for middle-market and growth companies — a revolving credit facility secured by the company's accounts receivable (and often inventory). Unlike factoring (which sells receivables), ABL uses receivables as COLLATERAL for a loan — the receivables remain on the balance sheet; the draw is debt. The BORROWING BASE is the maximum amount the company can borrow: typically 85% of eligible receivables (excluding receivables >90 days old, ineligible customers, concentrations exceeding 25% of the pool, and cross-aged receivables). Example: $100M gross AR − $20M ineligible = $80M eligible AR × 85% = $68M borrowing base. The company can draw up to $68M. Interest on the drawn balance: SOFR + 150–250 bps for investment-grade eligible borrowers. The ABL is SECURED — if the company defaults, the lender has first claim on all AR and can direct customers to pay to a lockbox controlled by the lender.
Practitioner & Systems Framework
💻 ERP Architecture
ABL facilities require monthly (or more frequent) borrowing base certificates — formal calculations submitted to the lender showing current eligible AR, ineligible amounts, and maximum availability. The borrowing base certificate is the key compliance document — false certifications constitute fraud. Companies draw on the facility as needed (when AR collections are delayed) and repay as collections come in. The AR aging report is the foundation of the borrowing base — clean, accurate aging is essential for maximizing availability and lender confidence.
⚠️ Audit Flags
ABL facility audits test: (1) Receivables remain on balance sheet (no derecognition — this is a borrowing, not a sale), (2) Short-term classification — most revolving ABL facilities are current liabilities (even if the facility has a 3-year term, the revolver is typically classified as short-term because the borrower has the obligation and ability to repay), (3) Borrowing base certificate accuracy — are ineligible receivables correctly excluded? Overestimating eligible receivables understates the ineligible exclusion and allows over-borrowing, (4) Pledged receivables disclosure — the AR is encumbered (pledged) and cannot be used for other purposes.
📄 Required Documentation
ABL credit agreement (borrowing base formula, eligible receivable criteria, financial covenants), monthly borrowing base certificates (submitted to lender), AR aging report (basis for borrowing base), draw and repayment records, lockbox account statements, ineligible receivable analysis, collateral monitoring certificates, and lender field audit reports.
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Expert Analysis by Qusai Ahmad
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