Invoice Finance Concentration Limit

What is it, how does it impact on my business and how do you avoid it?

Concentration limits can play a major role in terms of how much cash an invoice factoring or invoice discounting facility can generate. It is important to remember that not all invoice finance companies apply the same concentration limits and as such you need not suffer the consequence of a restrictive concentration limit.

What is a concentration limit?
A concentration on a sales ledger is where on customer or debtor accounts for a large percentage of the overall ledger of outstanding invoices. For example if you had a total ledger of £100,000 and one customer owed you £50,000 then the overall concentration would be 50%.

A concentration limit limits the amount of exposure a lender has to a single debtor on your ledger. For example some of the high street bank’s invoice finance providers always apply a 30% concentration limit.

How does a concentration limit impact on my business?
A good example is a new start recruitment business supplying staff into a chain of supermarkets. They have agreed an 80% prepayment and the concentration limit is 30%. At the end of the first weeks trading they have invoiced for £100,000. They send this off to the invoice finance provider expecting £80,000 to pay the wages of their contractors. When they check the availability they see that the eligible debt is £30,000 and the availability to draw down is only £24,000.

Total ledger = £100,000
However, this is all with one customer so the concentration limit kicks in.
Eligible debt = £100,000 X 30% = £30,000
Availability = Eligible debt X 80% = £24,000

As you can see this has an enormous impact on how much cash is generated by the facility.

This is a really common problem and either causes cash flow issues or forces you to turn business away from your largest customer.

What is the solution?
The answer to this is the structure of the facility. Lenders in the main wan to limit their risk and as such will wish to minimise and concentration. That said some lenders are more than happy to provide a 100% concentration limit so that a single debtor can be fully funded if required.

If you are having issues with concentration or any other restriction please contact Funding Solutions today on 0845 251 4040 or e-mail us at


    Privacy Policy