What Is Debtor Concentration and Why Does It Matter?
Debtor concentration is when a large percentage of your turnover comes from a single customer. Most invoice finance providers limit exposure to any single debtor at 25-40% of your total facility. If 60% of your revenue comes from one customer, your advance on that customer's invoices may be capped.
Why This Matters
Debtor concentration measures how much of your sales ledger depends on a single customer. UK invoice finance providers typically cap advances against any one debtor at 25 to 40% of your total facility, regardless of how much you actually invoice them. This isn't arbitrary risk aversion. If your biggest customer (who represents 70% of your turnover) goes into administration, the lender faces catastrophic exposure. A Birmingham engineering subcontractor invoicing JCB for £800,000 of a £1m book might only draw £300,000 against those invoices, even though they're creditworthy, because the concentration limit kicks in. This creates a cashflow paradox: your largest, most reliable contract can become your biggest funding constraint. The rule applies across invoice finance, invoice discounting, and selective invoice finance. Understanding concentration limits before you sign a facility prevents nasty surprises when you land that transformational contract and discover you can't fund the working capital to deliver it.
Key Points
- Most UK invoice finance providers cap exposure to a single debtor at 25-40% of your total facility value, even if that customer represents 60-80% of your turnover.
- Concentration limits apply to individual debtor balances, not invoice values. If you invoice Customer A for £500k across ten invoices, the limit applies to the total £500k outstanding.
- Blue-chip debtors don't always get exemptions. A recruitment agency invoicing 90% to NHS trusts may still face concentration caps, despite the debtor being government-backed.
- Breaching concentration limits doesn't stop you invoicing the customer, but it does cap how much you can draw down. The excess invoices sit unfunded until other debtors pay and rebalance your ledger.
- Some providers (Bibby Financial Services, Sonovate, Close Brothers) assess concentration case-by-case for sectors like recruitment or construction where dominant client relationships are unavoidable.
- Confidential invoice discounting facilities often have stricter concentration rules than disclosed factoring, because the lender has no direct debtor relationship to manage risk.
- Your concentration ratio changes daily as invoices are raised and paid. A facility that's compliant on Monday can breach limits by Friday if smaller debtors clear their balances first.
Real-World Example
A Leeds-based IT contractor has a £500,000 invoice discounting facility with Aldermore. They invoice three customers: Customer A (£300k outstanding), Customer B (£100k), Customer C (£100k). Aldermore's concentration limit is 35%.
The contractor can only draw 35% of £500k (£175,000) against Customer A's £300k ledger, despite an 85% advance rate. The remaining £125k of Customer A invoices sit unfunded. When Customer B pays their £100k, the facility rebalances, and the contractor can draw an additional £35k against Customer A. This creates unpredictable cashflow even though all three customers pay on time.
Common Pitfalls
- Assuming concentration limits only apply to 'risky' debtors. Even invoices to Unilever or the NHS hit the cap if they dominate your ledger.
- Signing a facility before winning a major contract, then discovering the concentration limit makes the contract undeliverable due to cashflow constraints.
- Confusing debtor concentration with director/shareholder concentration (a separate issue for personal guarantees). These are different risk metrics.
- Thinking you can work around limits by splitting invoices. Providers assess concentration by debtor entity, not invoice count.
- Failing to monitor your sales ledger mix. Concentration breaches often happen passively when smaller customers pay down faster than large ones.
What to Do Next
- Request the specific debtor concentration limit in writing before signing. Don't rely on verbal assurances. Check whether it's a hard cap or reviewed quarterly.
- Model your sales ledger by debtor. If your top customer exceeds 40% of receivables, ask providers (Sonovate, Close Brothers, Pulse Cashflow) about sector-specific concentration policies.
- If you're winning a transformational contract that will create concentration issues, discuss it with your provider before signing the deal. Some lenders increase facilities or grant temporary waivers for creditworthy blue-chip debtors.
- Consider selective invoice finance for diversified books. If you have ten small customers and one giant, fund the nine and use alternative working capital for the big one.
Related Questions
Can I get a higher concentration limit for government debtors like NHS trusts or local councils?
Some providers (Novuna Business Finance, Lloyds Bank Invoice Finance) offer higher concentration thresholds (up to 50-60%) for central government or NHS debtors due to sovereign credit quality. However, local councils and academy trusts are often treated as standard commercial debtors. Each lender assesses public sector concentration individually, and advance rates may still apply.
What happens if I breach the concentration limit mid-month?
You won't be able to draw further funds against the over-concentrated debtor until the ledger rebalances. Existing drawings aren't usually recalled immediately, but your facility becomes partially frozen. Repeated breaches can trigger covenant reviews. If the breach is temporary (a large invoice raised before month-end payments clear), most providers allow a few days' grace before restricting drawings.
Do concentration limits apply differently in invoice factoring versus invoice discounting?
The percentage caps are usually similar, but factoring providers (who manage your sales ledger) have more flexibility to manage concentration risk through active credit control. Confidential invoice discounting facilities often impose stricter limits because the lender has no direct debtor contact. Selective invoice finance avoids the issue entirely as you choose which invoices to fund.
Director, Market Invoice
Oliver leads Market Invoice's editorial and comparison research. With a background in UK commercial finance, he oversees provider analysis, rate verification, and industry reporting across all verticals.
Last reviewed: 6 April 2026