Cross-Aging (Cross-Age Rule)
Cross-aging is an eligibility rule that makes all of a debtor's invoices ineligible once a defined share of that debtor's balance is past due. If more than, say, 50 percent of what a debtor owes is delinquent, the lender treats the entire balance, even the current invoices, as ineligible, on the logic that a debtor struggling to pay old invoices is a risk on the new ones too.
How Cross-Aging Works
Normally an invoice becomes ineligible only when it individually ages past the eligibility window. Cross-aging (also called the cross-age or tainted-receivables rule) goes further: it looks at a debtor's whole balance, and if the past-due portion crosses a threshold, it disqualifies all of that debtor's receivables at once, including the invoices that are still current.
The Typical Threshold
The threshold is set in the agreement and commonly sits around 50 percent: if more than half of a debtor's balance is past due (beyond, say, 90 days), the entire balance for that debtor becomes ineligible. Some facilities use a different percentage or aging trigger, but the mechanic is the same.
Why Lenders Use It
Cross-aging is a concentration-of-risk control. A debtor that has let most of its balance go delinquent is signalling distress, and the current invoices from that same debtor are unlikely to be far behind. Rather than wait for each new invoice to age out one by one, the lender removes the whole exposure from the borrowing base immediately.
Impact on the Borrowing Base
Cross-aging can sharply reduce availability, because it can pull a large block of otherwise-current invoices out of the eligible pool the moment a debtor's aging deteriorates. That is exactly why it has to be monitored continuously rather than discovered at the next borrowing-base certificate. Zolvo tracks aging and eligibility in real time through portfolio monitoring, see asset-based lending.
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