Does contra or affiliate AR count toward the borrowing base at term sheet?
No. Contra and affiliate AR typically do not count toward the borrowing base at term sheet. NxStage's credit agreement (SEC EX-10.1) excludes “Contra Accounts” “to the extent of the potential offset” and “Inter-Company/Affiliate Accounts”: “Accounts that arise from a sale to any employee or Affiliate of any Credit Party.” OCC lists contra-accounts as commonly ineligible; Don Clarke lists affiliates ineligible.
Last updated: September 12, 2026
Buyer answer: carved out of Eligible Receivables
At term sheet, contra AR (the customer is also a vendor, so set-off can reduce collectible face value) and affiliate / related-party / intercompany AR typically do not count toward the borrowing base. They are carved out of Eligible Receivables.
OCC handbook: full contra set-off + affiliate risk
The OCC Comptroller's Handbook: Asset-Based Lending restores the exact contiguous PDF ineligible bullet: "Contra-accounts (in which a borrower sells to and purchases from the same customer), because the customer can "set off" the debt it owes against the debt owed to it and pay only the net amount." The same handbook says: "Affiliate receivables that may deteriorate simultaneously. Affiliate receivables can also increase the potential for fraud, particularly in times of financial stress." The glossary separately states that contra-accounts are usually considered ineligible collateral.
Full-ineligible: LegalClarity + NC Examiners + eCapital
LegalClarity on ABL AR collateral says: "Contra-accounts: If a customer also sells goods or services to you, that customer can offset what they owe against what you owe them and pay only the net amount. Lenders deduct these mutual obligations from the borrowing base to avoid that set-off risk." and "Affiliated-party invoices: Receivables from related companies or intercompany sales are excluded to prevent self-dealing." LegalClarity on cross-aging says: "Lenders typically treat contra-accounts as ineligible collateral because the receivable's face value overstates what the lender could actually collect." NC Examiners lists affiliates ineligible for conflicts of interest and collectability risks, and defines Contra Relationships (Offsets) as ineligible because they may be offset by the customer's claims. eCapital lists Related-Party Receivables as amounts that may be deemed ineligible because they may not be arms-length.
Lower-of / AP-extent contra: Don Clarke, ABF, Capital Source, LenderAnalyzer
Don Clarke says: "When your customer is also your vendor -- you owe them money and they owe you money -- the lower of the two balances is excluded as ineligible." and separately: "Receivables due from affiliates, parent companies, subsidiaries, or other related parties are ineligible, full stop." On the BBC, Don Clarke says: "Contra accounts. Where the customer is also a vendor of the borrower, the offset is ineligible to the extent of the AP owed to the same party." and "Intercompany and affiliate balances. Always ineligible." ABF Journal says: "Contra offset ineligibles are calculated based on the lower amount of the payable or otherwise eligible amount." Capital Source Group says: "Contra accounts Where the customer is also a vendor, the ineligible is the lower of the payable or the eligible receivable, because the counterparty will offset in a liquidation." LenderAnalyzer says: "Payable contra offsets exclude customers who are also vendors, at the lower of the payable or the otherwise eligible amount, because in a liquidation they will net the two."
| Claim | Listed | URL |
|---|---|---|
| OCC ABL: Contra-accounts set-off ineligible (full PDF bullet) | Contra-accounts (in which a borrower sells to and purchases from the same customer), because the customer can "set off" the debt it owes against the debt owed to it and pay only the net amount. | OCC ABL handbook PDF |
| OCC ABL: Affiliate receivables simultaneous deterioration / fraud risk | Affiliate receivables that may deteriorate simultaneously. Affiliate receivables can also increase the potential for fraud, particularly in times of financial stress. | OCC ABL handbook PDF |
| OCC ABL glossary: Contra-accounts usually ineligible collateral | Contra-accounts: Situations in which an entity is both a customer and a supplier, creating accounts receivable and accounts payable that may offset each other. These accounts are usually considered ineligible collateral. | OCC ABL handbook PDF |
| Don Clarke: Contra lower-of two balances ineligible | When your customer is also your vendor -- you owe them money and they owe you money -- the lower of the two balances is excluded as ineligible. | Don Clarke eligible vs ineligible |
| Don Clarke: Affiliates / related parties ineligible full stop | Receivables due from affiliates, parent companies, subsidiaries, or other related parties are ineligible, full stop. | Don Clarke eligible vs ineligible |
| Don Clarke BBC: Contra offset ineligible to extent of AP | Contra accounts. Where the customer is also a vendor of the borrower, the offset is ineligible to the extent of the AP owed to the same party. | Don Clarke BBC line-by-line |
| Don Clarke BBC: Intercompany and affiliate always ineligible | Intercompany and affiliate balances. Always ineligible. | Don Clarke BBC line-by-line |
| LegalClarity ABL AR: Contra-accounts set-off deduction | Contra-accounts: If a customer also sells goods or services to you, that customer can offset what they owe against what you owe them and pay only the net amount. Lenders deduct these mutual obligations from the borrowing base to avoid that set-off risk. | LegalClarity ABL AR collateral |
| LegalClarity ABL AR: Affiliated-party invoices excluded | Affiliated-party invoices: Receivables from related companies or intercompany sales are excluded to prevent self-dealing. | LegalClarity ABL AR collateral |
| LegalClarity cross-aging: Contra-accounts ineligible collateral | Lenders typically treat contra-accounts as ineligible collateral because the receivable's face value overstates what the lender could actually collect. | LegalClarity cross-aging |
| ABF Journal: Contra offset = lower of payable or eligible | Contra offset ineligibles are calculated based on the lower amount of the payable or otherwise eligible amount. | ABF Journal AR ineligibles |
| NC Examiners: Affiliates ineligible for conflicts / collectability | Receivables from affiliates are considered ineligible as collateral due to potential conflicts of interest and collectability risks. | NC Examiners ineligible categories |
| NC Examiners: Contra Relationships ineligible for offset | Contra Relationships (Offsets) Definition: In asset-based lending, Contra Relationships refer to situations where the borrower and customer owe amounts to each other. These receivables are ineligible as collateral because they may be offset by the customer’s claims. | NC Examiners ineligible categories |
| eCapital: Related-Party Receivables may be deemed ineligible | Related-Party Receivables : Receivables due from related parties, such as subsidiaries, affiliates, or other companies with a close relationship to the borrower, may be deemed ineligible because they may not be arms-length transactions and could be more difficult to collect. | eCapital ineligibles glossary |
| Capital Source: Contra lower of payable or eligible receivable | Contra accounts Where the customer is also a vendor, the ineligible is the lower of the payable or the eligible receivable, because the counterparty will offset in a liquidation. | Capital Source Group |
| LenderAnalyzer: Payable contra offsets lower-of mechanic | Payable contra offsets exclude customers who are also vendors, at the lower of the payable or the otherwise eligible amount, because in a liquidation they will net the two. | LenderAnalyzer borrowing base |
Frequently asked questions
Does contra or affiliate AR count toward the borrowing base at term sheet?
No. Contra AR (customer also a vendor / set-off) and affiliate, related-party, or intercompany AR typically do not count toward the borrowing base at term sheet—they are carved out of Eligible Receivables. OCC lists contra-accounts as commonly ineligible for set-off; Don Clarke lists affiliates ineligible full stop and contra as lower-of balances.
Why does the OCC treat contra-accounts as ineligible?
The OCC Comptroller's Handbook on Asset-Based Lending lists the contiguous ineligible bullet: Contra-accounts (in which a borrower sells to and purchases from the same customer), because the customer can "set off" the debt it owes against the debt owed to it and pay only the net amount. That is full contra-accounts set-off language.
Are affiliate and related-party receivables eligible at term sheet?
Typically no. Don Clarke states that receivables due from affiliates, parent companies, subsidiaries, or other related parties are ineligible, full stop, and that intercompany and affiliate balances are always ineligible on the BBC. OCC separately lists affiliate receivables that may deteriorate simultaneously and fraud-risk language. eCapital says related-party receivables may be deemed ineligible.
Is contra AR always fully ineligible, or is it a lower-of payable offset?
OCC and LegalClarity list full contra-accounts / set-off ineligible treatment. Don Clarke, ABF Journal, Capital Source, and LenderAnalyzer list a lower-of payable (or AP-extent) contra offset mechanic.
What do NC Examiners list for affiliates and contra relationships?
NC Examiners states that receivables from affiliates are considered ineligible as collateral due to potential conflicts of interest and collectability risks, and defines Contra Relationships (Offsets) as situations where the borrower and customer owe amounts to each other, with those receivables ineligible because they may be offset by the customer's claims.
Related
- Before binding an ABL revolver, which AR lines are ineligible and which get carved back at term sheet?
- What is a concentration reserve or single-debtor cap in an ABL facility?
- What AR aging buckets are ineligible in the Eligible Receivable definition?
- What is the difference between a dilution reserve and ineligible AR?
- Does cross-aged AR count toward the borrowing base at term sheet?
- Does foreign AR count toward the ABL borrowing base before revolver binds?
- What is a borrowing-base certificate and when must it be submitted?