Quick answer
A concentration limit is a cap a lender sets on how much of its exposure can rest on one customer, industry or asset. In invoice finance it usually means the share of your receivables ledger owed by a single debtor that the funder will count. Invoices above that cap are treated as ineligible, so a business with one dominant customer can borrow less than its ledger suggests.
Key points
- Most often met in invoice finance, where it caps funding against any single debtor
- Usually written as a percentage of the total eligible ledger
- Amounts above the cap aren't funded, which lowers the cash you can draw
- Limits can sometimes be lifted for strong, creditworthy debtors such as governments or listed companies
Put simply, a concentration limit stops a lender from having too many eggs in one basket. The lender decides the maximum share of its exposure that may depend on a single customer, sector or type of security, and anything beyond that line is left out of the calculation.
Where business owners run into it
The term shows up most in invoice finance and debtor finance. These facilities lend against what your customers owe you, so the lender’s real risk is your customers’ ability and willingness to pay. If one customer, or debtor, owes a big slice of your ledger, the funder’s fortunes rest heavily on that one company.
To manage that, the facility agreement will usually say something like: no single debtor may make up more than a stated percentage of the eligible ledger. Invoices from that debtor up to the cap are funded at the usual advance rate. The rest is still yours to collect, but you can’t draw against it.
It also appears at a bigger scale. Banks and non-bank lenders set internal caps on lending to particular industries, regions or property types, and banks report large exposures to APRA. When a lender says it’s “full” on, say, a certain kind of development site, that’s a concentration limit at work.
A worked example
A Brisbane packaging wholesaler has a $500k ledger of approved invoices. One supermarket supplier owes $250k of it. The financier’s terms are an 80% advance rate and a 25% concentration limit per debtor.
| Step | Without a cap | With a 25% cap |
|---|---|---|
| Invoices owed by the big customer | $250k | $250k |
| Counted toward funding | $250k | $125k (25% of $500k) |
| Invoices from all other customers | $250k | $250k |
| Eligible ledger | $500k | $375k |
| Available at 80% | $400k | $300k |
The wholesaler expected $400k and can draw $300k. That $100k gap might be the difference between taking on the next order or not. Run your own ledger through the invoice finance calculator, then remove anything above a likely cap to see the realistic figure.
Wondering whether your ledger would fund? A quick enquiry with us costs nothing and won’t touch your credit file.
How to work with a concentration limit
- Raise it early. Tell funders who your largest debtors are and what share they hold. The answer varies between providers more than most owners expect.
- Put forward your strongest debtors. A government department or listed company with a clean payment record is often granted a higher cap.
- Watch your aged receivables. Old invoices can be made ineligible on top of the concentration cap, which shrinks funding further.
- Combine facilities. A modest line of credit or a property-backed loan can fill the gap when one big contract dominates, which is common after you’ve won a large contract.
Related terms: debtor, factoring, invoice discounting and credit limit.
One big customer shouldn’t cap your growth
Lots of good businesses have a single customer that matters more than all the others, and there’s usually a structure that works around it. Tell us roughly what your ledger looks like and who the main debtors are. It takes around sixty seconds, and asking doesn’t mark your credit history. Your enquiry isn’t broadcast to dozens of funders. A real person on our side looks over the detail and picks up the phone to you. Precise figures, particularly the share owed by your biggest customer, mean the first funder we suggest is one whose caps actually fit your ledger.
Frequently asked questions
Why do lenders set concentration limits?
If most of a ledger is owed by one customer and that customer pays late, disputes invoices or fails, the lender's security shrinks overnight. Capping exposure to any single debtor spreads that risk across the ledger.
Can a concentration limit be increased?
Often, yes. Funders may lift the cap for a debtor with a strong payment record or credit standing, such as a government agency or a large listed company. Some will also consider credit insurance over the debtor.
Is a concentration limit the same as a credit limit?
No. A credit limit is the maximum you can draw on the whole facility. A concentration limit is a rule inside the facility about how much of the funding can rely on one customer.
Do banks use concentration limits too?
Yes. Banks and other lenders also limit their overall exposure to particular borrowers, industries, postcodes or property types. That's one reason a lender may decline a deal that looks fine on its own merits.
What can I do if my biggest customer makes up most of my ledger?
Ask funders up front how they treat that debtor, compare facilities, or look at a business loan or line of credit secured another way. Selective invoice finance, where you fund individual invoices, can also suit.