Does contra or affiliate AR count toward the borrowing base at term sheet?
Last updated: August 27, 2026
What is contra AR?
The OCC Comptroller's Handbook on Asset-Based Lending identifies "Contra-accounts (in which a borrower sells to and purchases from the same customer)" as commonly ineligible "because the customer can 'set off' the debt it owes against the debt owed to it and pay only the net amount."
Contra AR (also called offset AR) occurs when a company has both receivables from and payables to the same customer. For example, a manufacturer may sell finished goods to a supplier while also buying raw materials from that same supplier. The customer may offset amounts owed against amounts due, reducing the net collectible receivable. ABL lenders exclude contra AR from the borrowing base because the gross receivable amount may not be collectible if the customer exercises its offset rights.
What is affiliate AR?
Affiliate AR is accounts receivable from related entities such as parent companies, subsidiaries, or entities under common control. These intercompany receivables do not represent arm's-length transactions with independent third parties. Payment timing and amounts may be determined by corporate cash management decisions rather than standard commercial terms. ABL lenders exclude affiliate AR from the Eligible Receivable definition because collection depends on related-party relationships rather than enforceable commercial obligations.
| AR type | ABL treatment | Why excluded |
|---|---|---|
| Standard third-party AR | 70%–85% advance rate (OCC: "70 percent to 85 percent of eligible accounts receivable") | Arm's-length transaction; enforceable payment obligation. |
| Contra / offset AR | Excluded | Customer may offset receivable against payable; net collectible amount uncertain. |
| Affiliate / intercompany AR | Excluded | Related-party transaction; collection depends on corporate cash management decisions, not enforceable commercial terms. |
Source: OCC Comptroller's Handbook: Asset-Based Lending
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Frequently asked questions
Does contra or affiliate AR count toward the borrowing base at term sheet?
Contra AR and affiliate AR are typically excluded from the Eligible Receivable definition in ABL facilities. Contra AR represents receivables that may be offset by payables owed to the same customer. Affiliate AR is intercompany receivables between related entities. Both categories do not represent true arm's-length receivables, and collection may be uncertain or subject to offset. Most ABL lenders exclude them from the borrowing base.