Does contra or affiliate AR count toward the borrowing base at term sheet?
No. Contra and affiliate AR typically do not count toward the borrowing base at term sheet. NxStage's credit agreement (SEC EX-10.1) excludes “Contra Accounts” “to the extent of the potential offset” and “Inter-Company/Affiliate Accounts”: “Accounts that arise from a sale to any employee or Affiliate of any Credit Party”. OCC lists “Contra-accounts” among “receivables commonly designated as ineligible”; Don Clarke states: “Receivables due from affiliates, parent companies, subsidiaries, or other related parties are ineligible, full stop.” Two more filed ABL agreements: Harland Clarke’s Citibank ABL (SEC EX-4.21) states “such Account shall be ineligible pursuant to this clause (i) only to the extent of such deduction, offset, counterclaim, credit, allowance, return privilege or other condition”; Abercrombie & Fitch’s Wells Fargo ABL (SEC EX-10.3) excludes “Accounts which are owed by any Affiliate or any employee of a Loan Party” and “Accounts which are disputed or with respect to which a claim, counterclaim, offset or chargeback has been asserted, but only to the extent of such dispute, counterclaim, offset or chargeback”.
Last updated: September 12, 2026
Buyer answer: carved out of Eligible Receivables
At term sheet, contra AR (the customer is also a vendor, so set-off can reduce collectible face value) and affiliate / related-party / intercompany AR typically do not count toward the borrowing base. They are carved out of Eligible Receivables.
OCC handbook: full contra set-off + affiliate risk
The OCC Comptroller's Handbook: Asset-Based Lending lists, among “receivables commonly designated as ineligible”: “Contra-accounts (in which a borrower sells to and purchases from the same customer), because the customer can "set off" the debt it owes against the debt owed to it and pay only the net amount.” The same handbook says: “Affiliate receivables that may deteriorate simultaneously. Affiliate receivables can also increase the potential for fraud, particularly in times of financial stress.” Its glossary states: “Contra-accounts: Situations in which an entity is both a customer and a supplier, creating accounts receivable and accounts payable that may offset each other. These accounts are usually considered ineligible collateral.”
Full-ineligible: LegalClarity + NC Examiners + eCapital
LegalClarity on ABL AR collateral says: "Contra-accounts: If a customer also sells goods or services to you, that customer can offset what they owe against what you owe them and pay only the net amount. Lenders deduct these mutual obligations from the borrowing base to avoid that set-off risk." and "Affiliated-party invoices: Receivables from related companies or intercompany sales are excluded to prevent self-dealing." LegalClarity on cross-aging says: "Lenders typically treat contra-accounts as ineligible collateral because the receivable's face value overstates what the lender could actually collect." NC Examiners states: “Receivables from affiliates are considered ineligible as collateral due to potential conflicts of interest and collectability risks.” On Contra Relationships (Offsets) it states: “These receivables are ineligible as collateral because they may be offset by the customer's claims.” eCapital states: “Receivables due from related parties, such as subsidiaries, affiliates, or other companies with a close relationship to the borrower, may be deemed ineligible because they may not be arms-length transactions and could be more difficult to collect.”
Lower-of / AP-extent contra: Don Clarke, ABF, Capital Source, LenderAnalyzer
Don Clarke says: "When your customer is also your vendor -- you owe them money and they owe you money -- the lower of the two balances is excluded as ineligible." and separately: "Receivables due from affiliates, parent companies, subsidiaries, or other related parties are ineligible, full stop." On the BBC, Don Clarke says: "Contra accounts. Where the customer is also a vendor of the borrower, the offset is ineligible to the extent of the AP owed to the same party." and "Intercompany and affiliate balances. Always ineligible." ABF Journal says: "Contra offset ineligibles are calculated based on the lower amount of the payable or otherwise eligible amount." Capital Source Group says: "Contra accounts Where the customer is also a vendor, the ineligible is the lower of the payable or the eligible receivable, because the counterparty will offset in a liquidation." LenderAnalyzer says: "Payable contra offsets exclude customers who are also vendors, at the lower of the payable or the otherwise eligible amount, because in a liquidation they will net the two."
How do filed ABL credit agreements word the contra and affiliate exclusions?
Harland Clarke Holdings’ ABL Credit Agreement (SEC EX-4.21), dated as of February 20, 2013 with Citibank, N.A. as Administrative Agent, says “No Account shall be an Eligible Receivable if” “the sale represented by such Account is made by such Co-Borrower or such Subsidiary Guarantor to a Person that is a director, officer, other employee or Affiliate of Holdings, the Borrower or any of its Subsidiaries” or if “such Account is subject to any deduction, offset, counterclaim, credit, allowance, return privilege or other conditions other than volume sales discounts given in the ordinary course of the Co-Borrowers’ business”. It adds: “such Account shall be ineligible pursuant to this clause (i) only to the extent of such deduction, offset, counterclaim, credit, allowance, return privilege or other condition”.
Abercrombie & Fitch Management Co.’s ABL Credit Agreement (SEC EX-10.3), dated as of August 7, 2014 with Wells Fargo Bank, National Association as Agent, excludes from Eligible Trade Receivables “Accounts which are owed by any Affiliate or any employee of a Loan Party” and “Accounts which are disputed or with respect to which a claim, counterclaim, offset or chargeback has been asserted, but only to the extent of such dispute, counterclaim, offset or chargeback”.
| Filed agreement | Contra / offset wording | Affiliate wording |
|---|---|---|
| NxStage (SEC EX-10.1) | “to the extent of the potential offset” | “Accounts that arise from a sale to any employee or Affiliate of any Credit Party” |
| Harland Clarke / Citibank (SEC EX-4.21) | “only to the extent of such deduction, offset, counterclaim, credit, allowance, return privilege or other condition” | “to a Person that is a director, officer, other employee or Affiliate of Holdings, the Borrower or any of its Subsidiaries” |
| Abercrombie & Fitch / Wells Fargo (SEC EX-10.3) | “but only to the extent of such dispute, counterclaim, offset or chargeback” | “Accounts which are owed by any Affiliate or any employee of a Loan Party” |
| Claim | Listed | URL |
|---|---|---|
| OCC ABL: Contra-accounts set-off ineligible (full PDF bullet) | Contra-accounts (in which a borrower sells to and purchases from the same customer), because the customer can "set off" the debt it owes against the debt owed to it and pay only the net amount. | OCC ABL handbook PDF |
| OCC ABL: Affiliate receivables simultaneous deterioration / fraud risk | Affiliate receivables that may deteriorate simultaneously. Affiliate receivables can also increase the potential for fraud, particularly in times of financial stress. | OCC ABL handbook PDF |
| OCC ABL glossary: Contra-accounts usually ineligible collateral | Contra-accounts: Situations in which an entity is both a customer and a supplier, creating accounts receivable and accounts payable that may offset each other. These accounts are usually considered ineligible collateral. | OCC ABL handbook PDF |
| Don Clarke: Contra lower-of two balances ineligible | When your customer is also your vendor -- you owe them money and they owe you money -- the lower of the two balances is excluded as ineligible. | Don Clarke eligible vs ineligible |
| Don Clarke: Affiliates / related parties ineligible full stop | Receivables due from affiliates, parent companies, subsidiaries, or other related parties are ineligible, full stop. | Don Clarke eligible vs ineligible |
| Don Clarke BBC: Contra offset ineligible to extent of AP | Contra accounts. Where the customer is also a vendor of the borrower, the offset is ineligible to the extent of the AP owed to the same party. | Don Clarke BBC line-by-line |
| Don Clarke BBC: Intercompany and affiliate always ineligible | Intercompany and affiliate balances. Always ineligible. | Don Clarke BBC line-by-line |
| LegalClarity ABL AR: Contra-accounts set-off deduction | Contra-accounts: If a customer also sells goods or services to you, that customer can offset what they owe against what you owe them and pay only the net amount. Lenders deduct these mutual obligations from the borrowing base to avoid that set-off risk. | LegalClarity ABL AR collateral |
| LegalClarity ABL AR: Affiliated-party invoices excluded | Affiliated-party invoices: Receivables from related companies or intercompany sales are excluded to prevent self-dealing. | LegalClarity ABL AR collateral |
| LegalClarity cross-aging: Contra-accounts ineligible collateral | Lenders typically treat contra-accounts as ineligible collateral because the receivable's face value overstates what the lender could actually collect. | LegalClarity cross-aging |
| ABF Journal: Contra offset = lower of payable or eligible | Contra offset ineligibles are calculated based on the lower amount of the payable or otherwise eligible amount. | ABF Journal AR ineligibles |
| NC Examiners: Affiliates ineligible for conflicts / collectability | Receivables from affiliates are considered ineligible as collateral due to potential conflicts of interest and collectability risks. | NC Examiners ineligible categories |
| NC Examiners: Contra Relationships ineligible for offset | Contra Relationships (Offsets) Definition: In asset-based lending, Contra Relationships refer to situations where the borrower and customer owe amounts to each other. These receivables are ineligible as collateral because they may be offset by the customer’s claims. | NC Examiners ineligible categories |
| eCapital: Related-Party Receivables may be deemed ineligible | Related-Party Receivables : Receivables due from related parties, such as subsidiaries, affiliates, or other companies with a close relationship to the borrower, may be deemed ineligible because they may not be arms-length transactions and could be more difficult to collect. | eCapital ineligibles glossary |
| Capital Source: Contra lower of payable or eligible receivable | Contra accounts Where the customer is also a vendor, the ineligible is the lower of the payable or the eligible receivable, because the counterparty will offset in a liquidation. | Capital Source Group |
| LenderAnalyzer: Payable contra offsets lower-of mechanic | Payable contra offsets exclude customers who are also vendors, at the lower of the payable or the otherwise eligible amount, because in a liquidation they will net the two. | LenderAnalyzer borrowing base |
| Harland Clarke/Citibank: affiliate sale excluded | to a Person that is a director, officer, other employee or Affiliate of Holdings, the Borrower or any of its Subsidiaries | Harland Clarke Holdings / Citibank ABL Credit Agreement (SEC EX-4.21) |
| Harland Clarke/Citibank: offset-subject Account excluded | such Account is subject to any deduction, offset, counterclaim, credit, allowance, return privilege or other conditions other than volume sales discounts given in the ordinary course of the Co-Borrowers’ business | Harland Clarke Holdings / Citibank ABL Credit Agreement (SEC EX-4.21) |
| Harland Clarke/Citibank: offset ineligible only to its extent | only to the extent of such deduction, offset, counterclaim, credit, allowance, return privilege or other condition | Harland Clarke Holdings / Citibank ABL Credit Agreement (SEC EX-4.21) |
| Abercrombie & Fitch/Wells Fargo: affiliate-owed Accounts excluded | Accounts which are owed by any Affiliate or any employee of a Loan Party | Abercrombie & Fitch Management Co. / Wells Fargo ABL Credit Agreement (SEC EX-10.3) |
| Abercrombie & Fitch/Wells Fargo: offset excluded only to its extent | Accounts which are disputed or with respect to which a claim, counterclaim, offset or chargeback has been asserted, but only to the extent of such dispute, counterclaim, offset or chargeback | Abercrombie & Fitch Management Co. / Wells Fargo ABL Credit Agreement (SEC EX-10.3) |
Frequently asked questions
Does contra or affiliate AR count toward the borrowing base at term sheet?
No. Contra AR (customer also a vendor / set-off) and affiliate, related-party, or intercompany AR typically do not count toward the borrowing base at term sheet—they are carved out of Eligible Receivables. The OCC lists, among “receivables commonly designated as ineligible”: “Contra-accounts (in which a borrower sells to and purchases from the same customer), because the customer can "set off" the debt it owes against the debt owed to it and pay only the net amount.” Don Clarke states: “Receivables due from affiliates, parent companies, subsidiaries, or other related parties are ineligible, full stop.” and “When your customer is also your vendor -- you owe them money and they owe you money -- the lower of the two balances is excluded as ineligible.”
Why does the OCC treat contra-accounts as ineligible?
The OCC Comptroller's Handbook: Asset-Based Lending lists, among “receivables commonly designated as ineligible”: “Contra-accounts (in which a borrower sells to and purchases from the same customer), because the customer can "set off" the debt it owes against the debt owed to it and pay only the net amount.” Its glossary states: “These accounts are usually considered ineligible collateral.”
Are affiliate and related-party receivables eligible at term sheet?
Typically no. Don Clarke states: “Receivables due from affiliates, parent companies, subsidiaries, or other related parties are ineligible, full stop.” On the borrowing base certificate it states: “Intercompany and affiliate balances. Always ineligible.” The OCC lists “Affiliate receivables that may deteriorate simultaneously.” eCapital states related-party receivables “may be deemed ineligible because they may not be arms-length transactions and could be more difficult to collect.”
Is contra AR always fully ineligible, or is it a lower-of payable offset?
The OCC glossary states: “Contra-accounts: Situations in which an entity is both a customer and a supplier, creating accounts receivable and accounts payable that may offset each other. These accounts are usually considered ineligible collateral.” LegalClarity states: “Lenders typically treat contra-accounts as ineligible collateral because the receivable's face value overstates what the lender could actually collect.” Don Clarke states: “When your customer is also your vendor -- you owe them money and they owe you money -- the lower of the two balances is excluded as ineligible.” ABF Journal states: “Contra offset ineligibles are calculated based on the lower amount of the payable or otherwise eligible amount.”
What do NC Examiners list for affiliates and contra relationships?
NC Examiners states: “Receivables from affiliates are considered ineligible as collateral due to potential conflicts of interest and collectability risks.” On Contra Relationships (Offsets) it states: “In asset-based lending, Contra Relationships refer to situations where the borrower and customer owe amounts to each other. These receivables are ineligible as collateral because they may be offset by the customer's claims.”
Do filed ABL agreements exclude the whole contra account or only the offset?
Harland Clarke’s Citibank ABL (SEC EX-4.21) states “such Account shall be ineligible pursuant to this clause (i) only to the extent of such deduction, offset, counterclaim, credit, allowance, return privilege or other condition”, and Abercrombie & Fitch’s Wells Fargo ABL (SEC EX-10.3) excludes “Accounts which are disputed or with respect to which a claim, counterclaim, offset or chargeback has been asserted, but only to the extent of such dispute, counterclaim, offset or chargeback”. Abercrombie & Fitch also excludes “Accounts which are owed by any Affiliate or any employee of a Loan Party”.
Related
- Before binding an ABL revolver, which AR lines are ineligible and which get carved back at term sheet?
- What is a concentration reserve or single-debtor cap in an ABL facility?
- What AR aging buckets are ineligible in the Eligible Receivable definition?
- What is the difference between a dilution reserve and ineligible AR?
- Does cross-aged AR count toward the borrowing base at term sheet?
- Does foreign AR count toward the ABL borrowing base before revolver binds?
- What is a borrowing-base certificate and when must it be submitted?