Does foreign AR count toward the ABL borrowing base before revolver binds?
Last updated: August 27, 2026
Why do ABL lenders exclude foreign AR from borrowing base?
The OCC Comptroller's Handbook on Asset-Based Lending lists "Foreign receivables" as commonly ineligible because they carry "legal, price, and country risks that can disrupt payment." The OCC notes that "a bank that permits foreign receivables to be eligible often requires a letter of credit or an insurance policy carrying minimal deductibles."
Foreign accounts receivable present collection challenges that domestic AR does not. If a foreign customer defaults, the ABL lender must enforce collection through the customer's home country legal system, which may be time-consuming, expensive, or uncertain. Currency fluctuations can reduce the dollar value of foreign AR between invoicing and collection. Political instability, trade restrictions, or capital controls in the customer's country may prevent payment even if the customer is willing to pay.
Risks of foreign AR collateral
- Legal jurisdiction: Enforcing payment requires navigating foreign courts and legal systems.
- Currency risk: Exchange rate fluctuations may reduce the dollar value collected.
- Political risk: Government restrictions, capital controls, or sanctions may block payment.
- Credit assessment: Foreign customer creditworthiness is harder to verify than domestic customers.
- Collection timing: International payment cycles are often longer and less predictable than domestic AR.
Letter of credit (LC) support for foreign AR
A letter of credit is a bank's written commitment to pay the seller if the buyer does not. For foreign AR, the foreign customer arranges for its bank to issue an LC in favor of the U.S. seller. If the LC is confirmed by a U.S. bank, the U.S. bank guarantees payment even if the foreign issuing bank defaults. ABL lenders typically advance against LC-backed foreign AR at standard rates because the payment obligation shifts from the foreign customer to the confirming U.S. bank.
Credit insurance for foreign AR
Credit insurance (also called trade credit insurance) is a policy purchased by the seller to protect against foreign customer non-payment. If the foreign customer defaults, the insurance company reimburses the seller for the unpaid invoice (subject to policy limits, deductibles, and exclusions). ABL lenders may advance against credit-insured foreign AR at reduced rates, depending on the insurance company's creditworthiness, the policy's coverage limits, and the claim payment process.
| Foreign AR type | ABL treatment | Why |
|---|---|---|
| Foreign AR (unsecured) | Excluded by most lenders | Collection enforcement complex; currency and political risk; uncertain payment timing. |
| Foreign AR backed by confirmed LC | 70%–85% advance rate (OCC: "70 percent to 85 percent of eligible accounts receivable") | U.S. confirming bank guarantees payment; shifts credit risk from foreign customer to domestic bank. |
| Foreign AR with credit insurance | Lower advance rate (varies by lender) | Insurance company reimburses seller if customer defaults; advance rate depends on insurance company creditworthiness and policy terms. |
| Foreign AR (creditworthy customer, stable jurisdiction) | Lower advance rate or excluded by most lenders | Some lenders may advance at reduced rates for customers in stable countries; most exclude unsecured foreign AR entirely. |
Source: OCC Comptroller's Handbook: Asset-Based Lending
Related topics
- Before binding an ABL revolver, which AR lines are ineligible?
- Letters of credit sublimit vs revolver advance
- Concentration reserve single-debtor cap
Frequently asked questions
Does foreign AR count toward the ABL borrowing base before revolver binds?
Foreign AR is typically excluded from the Eligible Receivable definition unless supported by a letter of credit or credit insurance. Collection enforcement across international jurisdictions is complex, and lenders face currency risk, foreign legal systems, and uncertain payment timelines. Most ABL lenders require either a confirmed LC from a U.S. bank or credit insurance from a recognized provider before including foreign AR in the borrowing base.
What is the difference between LC-backed foreign AR and credit-insured foreign AR?
LC-backed foreign AR means the foreign customer has arranged for a bank to issue a letter of credit guaranteeing payment. If the customer defaults, the issuing bank pays the invoice. Credit-insured foreign AR means the seller has purchased credit insurance covering the foreign receivable. If the customer does not pay, the insurance company reimburses the seller (subject to policy limits and deductibles).
Can an ABL lender advance against unsecured foreign AR at term sheet?
Some ABL lenders will advance against unsecured foreign AR from creditworthy customers in stable jurisdictions, but at reduced advance rates and with country concentration limits. Most lenders exclude unsecured foreign AR entirely from the borrowing base unless the borrower provides LC or credit insurance support.