How AR and Inventory Financing Combine Into One Borrowing Base

Getting a large order or a fast-growing sales pipeline is one problem. Funding the working capital behind it is another. AR and inventory financing solves that second problem by combining two of your most liquid assets, accounts receivable and inventory, into a single credit line. Instead of borrowing against one asset class at a time, you lend against both under one borrowing base and draw a single availability figure that flexes as your business does.

This structure is one of the most common forms of asset-based lending, and it is worth understanding on its own terms. This page covers the combined-collateral mechanic: how the two assets stack, when combining beats a single-asset line, and what the arrangement costs to monitor.

AR and inventory financing is a facility that lends against both your accounts receivable and your inventory under a single borrowing base. Each asset class carries its own advance rate, and the two are summed into one availability figure. It is a common configuration of asset-based lending (ABL), the broad category of loans secured by a company’s working assets.

How AR and Inventory Financing Stacks Into One Borrowing Base

The borrowing base is the engine of the facility. Each asset class gets its own advance rate, the two results are added together, and the sum becomes the amount you can draw. This is the citable mechanic most explanations skip.

Advance rates differ by asset because liquidity differs by asset. Receivables convert to cash faster and more predictably than inventory, so they carry a higher rate. Typical ranges look like this:

Those ranges reflect standard ABL practice. A 2011 Journal of Accountancy worked example uses an 85% advance on eligible receivables and 60% on eligible inventory, which sits squarely in the common band.

Here is how the two stack in practice. Say your business carries $1,000,000 in eligible receivables and $600,000 in eligible inventory. Apply an 85% advance to the receivables and a 60% advance to the inventory:

1. Receivables: $1,000,000 × 85% = $850,000
2. Inventory: $600,000 × 60% = $360,000
3. Combined availability: $850,000 + $360,000 = $1,210,000

Neither asset alone gets you to $1.21 million. Receivables on their own cap you at $850,000; inventory alone at $360,000. Stacking them is what unlocks the larger line. And because the base recalculates as receivables get paid and inventory turns, your availability moves with the business rather than sitting frozen at a fixed limit.

One word matters here: eligible. Lenders exclude receivables past a certain age, invoices from concentrated or shaky customers, and inventory that is obsolete, consigned, or hard to sell. Your gross balances and your eligible balances are rarely the same number.

When Combined Beats a Single-Asset Line

A combined facility earns its keep when you carry meaningful balances in both receivables and inventory at the same time. If one side of your balance sheet is thin, a single-asset line may cover you with less reporting. The combination pays off in three profiles.

Businesses with real balances on both sides. Manufacturers, wholesalers, and distributors that buy or build inventory and then sell on terms hold value in both places at once. A receivables-only line ignores the stock sitting in the warehouse; an inventory-only line ignores the invoices already issued. Combining them counts both.

Companies in a growth phase that need maximum availability. When you are scaling into larger orders, the gap between what you can borrow and what you need to spend widens fast. Pulling both asset classes into one base gives you the highest defensible line without adding a separate facility and a second set of covenants.

Seasonal businesses. Inventory and receivables often peak at different points in the cycle. You build inventory ahead of a busy season, then convert it to receivables as orders ship. A combined base captures whichever asset is heavy at a given moment, so availability holds up across the swing instead of collapsing between the two peaks.

Costs and Monitoring: The Honest Trade-Off

A combined facility carries more monitoring than a single-asset line, and you should plan for it. When the lender is watching two collateral pools instead of one, reporting and verification roughly double.

Expect three recurring obligations:

• Borrowing base certificates and AR aging reports. You certify the current base and supply receivables agings on a set cadence. Under bank supervisory guidance, an asset-based lender often requires borrowing base certificates on a weekly or monthly basis, per the OCC’s Accounts Receivable and Inventory Financing handbook.
• Inventory reporting. You periodically certify the amount, type, and condition of inventory and provide valuations, since inventory eligibility shifts as stock ages or turns.
• Field exams. The lender, or an independent firm, inspects your books and collateral to confirm the reported numbers hold up. The OCC’s Asset-Based Lending handbook describes field audits as integral to controlling and monitoring ABL facilities. In practice, the cost of field exams is typically passed on to the borrower.

None of this is a reason to avoid the structure. It is the price of a larger, more flexible line, and the discipline it imposes, clean agings and current inventory records, is worth building anyway. Go in knowing the reporting load matches the borrowing power.

How This Fits Within Asset-Based Lending

AR and inventory financing is one configuration of asset-based lending, not a separate product category. ABL is the broad family of loans secured by a company’s working assets, and receivables plus inventory happen to be the two most common forms of collateral in that family. The OCC’s handbook notes that ABL collateral consists predominantly of accounts receivable and inventory, which is exactly why the combined facility is so widely used.

The category is large. The Secured Finance Network’s 2025 Market Sizing Study estimates ABL commitments reached $537 billion at year-end 2024, with commitments growing every year since 2018.

If you want the full definition of asset-based lending, how it compares to cash-flow lending, and where equipment and real estate fit as collateral, start with our breakdown of ABL and other working-capital structures. For a closer look at borrowing against stock alone, see our guide to inventory financing for CPG companies.

Match the Structure to Your Balance Sheet

If your business holds real value in both receivables and inventory, a combined line usually gives you more availability and more flexibility than borrowing against either asset alone. The trade-off is more reporting, and for most growth-stage operators that trade is worth making.

The harder part is finding a lender whose advance rates, eligibility rules, and monitoring terms actually fit your business. Bridge manages that process for CPG brands and retail suppliers, structuring your request around how inventory and working-capital lenders actually underwrite, then coordinating diligence through closing. Request financing.

FAQs

What is accounts receivable and inventory financing?

Accounts receivable and inventory financing is a facility that lends against both your receivables and your inventory under a single borrowing base. Each asset class carries its own advance rate, receivables typically ~80–90% and inventory typically ~50–80%, and the two are summed into one line of credit. It is a common form of asset-based lending.

How is the borrowing base calculated on a combined facility?

The lender applies a separate advance rate to your eligible receivables and your eligible inventory, then adds the two results together. For example, 85% of $1,000,000 in eligible receivables ($850,000) plus 60% of $600,000 in eligible inventory ($360,000) produces a combined availability of $1,210,000. The base recalculates as receivables are collected and inventory turns.

Why are advance rates higher on receivables than on inventory?

Receivables carry higher advance rates because they convert to cash faster and more predictably than inventory. An invoice is a customer’s obligation to pay, usually within 30 to 90 days. Inventory has to be sold first, and its rate depends on how salable it is in a liquidation, which is why inventory rates run lower and vary more widely.

Does a combined facility require more reporting than a single-asset line?

Yes. Because the lender monitors two collateral pools, you typically provide borrowing base certificates, AR aging reports, and periodic inventory reports, and you should expect field exams. Bank supervisory guidance notes that borrowing base certificates are often required weekly or monthly. The added reporting is the trade-off for a larger, more flexible line.

Is AR and inventory financing the same as asset-based lending?

Not exactly. Asset-based lending is the broad category of loans secured by working assets, which can include receivables, inventory, equipment, and real estate. AR and inventory financing is one common configuration of ABL that combines the two most liquid asset classes into a single borrowing base.