Availability

In a factoring or borrowing base facility, availability (disponibilité) is the amount the company can draw at a given moment. In factoring, it equals the value of the approved receivables multiplied by the agreed prepayment percentage, less the amounts already paid to the assignor. In an asset-based credit facility, the calculation starts from the borrowing base: eligible assets multiplied by the advance rate, less reserves. Outstanding drawings and issued letters of credit are then deducted. Availability changes with each new invoice, each collection and each inventory update. When it becomes negative, the facility is in overadvance and the borrower repays the difference within a few days. The borrower calculates its availability in the borrowing base certificate it delivers to the lender. This certificate is monthly for a healthy borrower, weekly or daily for a higher risk or after a covenant breach. Its frequency increases when performance thresholds are crossed. The lender checks the certificates during one or two field audits a year.

A distribution mid-cap has a €60m facility. Its borrowing base for the month stands at €52m after reserves. It has drawn €40m and issued €3m of letters of credit in favour of suppliers: its availability is €9m. If a large customer pays late and €8m of its invoices become ineligible, the base falls by €6.8m at the 85% advance rate and availability drops to €2.2m.

• Track your availability each week to anticipate an overadvance.
• Negotiate the period for curing an overadvance and the related fees.
• Check the frequency of the borrowing base certificate and the thresholds that increase it.
• Have the contract state whether letters of credit and foreign exchange hedges use up availability.