Banks and Old AR

One of our clients asked “Why are the old account receivables such a big deal to our bank?”

(The company maintains a line of credit with a borrowing base based on accounts receivable.)

Here are some of the obvious answers I gave:

1️⃣ The likelihood of collection will probably decrease over time.

2️⃣ The old stuff will take more effort to collect.

3️⃣ It's not as useful for the bank to use if they need to default the loan and satisfy the balance.

Call me old, but these keep me up at night. I'm at a point in my career where I’ve seen it get real weird.

❌ The revenue is fake to boost a commission and controls have missed it

❌ Someone did something stupid like booking a payment to revenue rather than against an invoice

❌ Someone is running off with customer deposits.

❌ The invoice isn't being paid because I'm waiting on a legal dispute

❌ The customer is offended and we're going to have to walk back or discount an invoice

❌ The customer pays slow consistently (I'm looking at you restaurant people)

Every clerical issue in accounting is still a human issue🤦

Old AR is impending uncomfortable phone calls, concessions, and sometimes lawyers.