Rethinking the Borrowing Base Calculation for AR Financing in the Digital Age

Martin Macmillan
5 min readDec 12, 2018


When it comes to providing Accounts Receivable (AR) credit lines, the borrowing base calculation is all important. It defines how much a bank is prepared to lend against a pool of existing trade receivables, and the terms on which it will do so. Typically at the end of each month, a company will submit to the bank details of all the outstanding invoices as an aged receivables list. This is normally done through a laborious process of filling in a borrowing case certificate and providing supporting evidence in the form of spreadsheets containing details of outstanding payables and receivables, as well as some over measures of the financial health of the company.

The bank then uses this month end snapshot as the basis of establishing the overall borrowing base to determine how much it is prepared to lend. The certificate starts with a top line number of total accounts receivable, and then is subject to a series of exclusions, for example invoices due from foreign counterparties, or that have been outstanding for more than a defined number of days, or that might break a concentration limit of too much risk from a particular counterparty.

This final figure is then subject to a further ‘haircut’, typically an additional 20% to shield the bank from losses which means that borrowers typically arrive at 60–80% of their actual AR outstanding which can be borrowed against.

Does this approach work in the digital age?

Whilst this approach has been tried and tested over decades, is it now time to rethink some of these ingrained assumptions on how these facilities should operate in a digital age?

For example, concentration has typically been viewed as a risk factor, but what if that risk was concentrated on the best credit risk counterparties in the world? And what if that sales data required to verify a transaction could be pulled forensically directly from a digital billing platform every day, rather than relying on manual transmission of spreadsheets sent from the company itself?

Take for example an app or game monetizing through selling content on the app stores and/or making advertising revenues for serving third-party ads in their games from Facebook and Google. Platforms like Apple, Google and Facebook operate marketplaces for digital content and advertising but operate in a way which is pretty alien to banks offering “traditional” AR lines. For example, there is no actual invoice submitted by the developer to the platform based on sales made to consumers, and sales are reported daily (not monthly) directly from the dashboards of the platforms.

Take a mobile gaming company which is making $500k per month selling games on the App Store and Google Play. Although they have thousands of consumers purchasing content in their games, this is all aggregated into one single monthly payment from the platform, paid out up to between 45 and 60 days in arrears.

Apart from some generally minor adjustments through refunds and chargebacks, the daily sales reports are typically very close to the amounts that are ultimately credited to the company’s bank account. Thus, the idea of an 80% cap on available AR to borrow against, and additional restrictions around concentration is clearly out of sync with how these companies operate. Not to mention the ultimate credit risk the bank is actually exposed to.

Fuelling the Flames

Successful developers need AR lines for access to funds quickly to reinvest into paid user acquisition for their game or app. For a developer who has figured out an ROI positive way to spend on advertising, every day of not being able to reinvest cash back into the marketing machine is money left on the table.

This all comes down to simple unit economics of Customer Acquisition Cost (CAC) to customer Lifetime Value (LTV). If a developer can demonstrate an LTV in excess of its acquisition cost, then they can reinvest into paid marketing to generate a positive ROI.

Old rules

So waiting until the end of the month before being able to submit a borrowing base certificate and go through the bank’s verification process can be a painful wait for the developer and cost them money along the way.

Developers are constrained by the 80% rule as well. By limiting the amount of funds that can be borrowed against, it effectively caps the reinvestment rate and therefore the potential returns developers can make through their online marketing initiatives.

Lastly, clunky and onerous reporting is a problem for everyone. For the company finance team, it’s a significant time overhead. For the banks, it’s a significant processing cost overhead, and also fraught with risk given the manual nature of the reporting mechanic requiring manual verification.

So, given all of this background information, when it comes to AR and banks, why do the old rules still apply?

Clearly, banks have well-established processes in place for operating AR lines successfully and like every sector of legacy banking, there is an inertia and a lack of appetite for change. Whilst some banks are embracing the challenge of the moment, others are wrapped up in regulatory red tape and a fear of change from their credit teams. For many then, developers’ requirements have outpaced what traditional providers of AR lines can deliver.

AR for the Digital Age

Alternative lenders such as Pollen VC are pioneering the new frontier in AR financing in digital markets. Our approach is to take a new data-driven method to verification of a company’s borrowing base. We are able to think out of the box on pricing credit and letting the data do the talking.

This a good thing for high growth digital businesses, because being data-driven, it results in a financial product that is significantly more user-friendly from an end user point of view, at an equivalent cost of capital.

There is a higher level of transparency, with no more spreadsheets and clunky reports required in order to provide a financing product that allows developers to maximise their capital efficiency.

By understanding our customers’ requirements we are better able to serve them with a financing product that fits their needs than legacy banking products.

Pollen VC provides flexible credit lines to app developers and digital publishers. Pollen VC allows digital businesses to expedite their growth using non-dilutive financing secured against their accounts receivable due from the leading app stores and mobile ad networks. Pollen VC has offices in London and San Francisco. Find out how Pollen VC is fuelling growth in the app economy here.



Martin Macmillan

CEO & Founder at Pollen VC - London, we provide devs early access to revenues earned from the app stores so they can rapidly reinvest