RECEIVABLES FINANCE GLOSSARY

Excess concentration

DEFINITION

Excess concentration is the portion of a receivables pool that exceeds the concentration limit set for a single obligor or obligor group in the credit agreement. Most agreements cap any one obligor at a fixed percentage of eligible receivables, and the balance above that cap is deducted from the borrowing base or net receivables balance.

Applies to:Asset-based lendingTrade receivables securitizationFactoringReceivables purchase agreements

Why lenders cap single obligor exposure

A receivables pool is only as diversified as its largest customers. If one obligor is 30 percent of the pool and that obligor stops paying, the collateral takes a hit no advance rate can absorb. Concentration limits force the funded pool to stay diversified: the lender still lets you include the obligor, just not all of it.

Limits vary by facility and often by obligor quality. A common structure in asset-based lending is a flat 10 percent cap per obligor. In trade receivables securitizations, caps are frequently tiered by the obligor's credit rating, for example 10 percent for an A rated obligor, 6 percent for BBB, and 3 percent for unrated names. This varies by facility, so the agreement controls.

How the excess concentration deduction works

The calculation runs at the obligor group level after other eligibility tests. Take each group's eligible balance, compare it to its limit applied to the eligible pool, and deduct anything above the limit. The invoices themselves are not ineligible. Only the overage comes out.

EXCESS CONCENTRATION ON A $40,000,000 ELIGIBLE POOL WITH A 10% LIMIT
Obligor group	Eligible balance	Limit (10% = $4,000,000)	Excess
Northwind Retail Group	$6,800,000	$4,000,000	$2,800,000
Apex Manufacturing	$4,900,000	$4,000,000	$900,000
Cascade Foods	$3,600,000	$4,000,000	$0
All other obligors	$24,700,000	under limit	$0
Total excess concentration			$3,700,000

Here the pool loses $3,700,000 of collateral value, which at an 85 percent advance rate is roughly $3.1 million of availability. Note the circularity trap: some agreements apply the limit to the pool net of excess concentration, which makes the calculation iterative. Read the definition carefully.

Where the calculation goes wrong in practice

Missing obligor grouping: five subsidiaries of the same parent booked as five customers understate concentration until a field exam catches it.
Stale ratings: tiered limits move when an obligor is downgraded, and a limit that drops from 6 percent to 3 percent can create a large deduction overnight.
Applying limits to gross AR instead of the eligible pool, which overstates the allowed exposure.
Netting errors: credit memos applied to the wrong obligor shift concentration between groups.

Olycor computes excess concentration deterministically from obligor group mappings you control, applies the tiering rules from your agreement, and shows the invoice level makeup of every overage. When the number moves month over month, you can see exactly which obligor moved it and why.

Frequently asked questions

Is excess concentration the same as an ineligible receivable?+

No. Ineligible invoices fail a test and drop out entirely. Excess concentration removes only the portion of an otherwise eligible obligor balance that sits above the limit. The distinction matters because collections on that obligor still flow to the pool, and the excess can come back into the base as the balance falls.

How do rating based concentration tiers work?+

Many securitization agreements set the per obligor limit by the obligor's short term or long term rating, for example 10 percent for A ratings, 6 percent for BBB, and 2 to 3 percent for unrated obligors. When a rating changes, the limit changes on the next calculation date, so the pool needs to be retested against current ratings each period.

Can I reduce excess concentration without losing the customer?+

Sometimes. Common approaches include negotiating a special obligor limit for a strong customer, obtaining credit insurance that lifts the cap, or selling faster paying receivables from that obligor first. Whether any of these works depends on your agreement and lender, so treat them as options to raise, not guarantees.

Know your concentration before your lender does.

Olycor aggregates exposure by obligor group, applies your facility's tiered limits, and traces every excess concentration dollar to the invoices behind it.

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