Debtor concentration, measured properly
A concentration limit is only as good as the figure you test against it. One company under three spellings, a balance in euros counted as pounds, or a debtor that is also a supplier can each hide a breach in plain sight.
On Business Audits · 21 October 2026 · 5 min read
Concentration is the share of a client’s ledger owed by a single debtor. Most facilities cap it, because a ledger that depends on one or two customers is only as good as those customers. When the largest debtor fails, disputes or simply pays late, the effect on the funded balance is immediate.
The calculation looks simple: one debtor’s balance divided by the ledger total. In practice three things regularly make it wrong, and each one makes the figure look better than it is.
One company, several names
Ledgers are kept by people, and people open new accounts. The same customer can appear as a limited company, under its trading name, with “Ltd” written out in full, or as a separate account for a second site. Each line looks like a different debtor, and each one sits comfortably under the limit.
| Ledger account | Balance (£) | Share of ledger |
|---|---|---|
| Hartley Foods Ltd | 96,000 | 12.0% |
| Hartley Foods Limited | 41,000 | 5.1% |
| Hartley Foods | 23,000 | 2.9% |
| Hartley Foods, combined | 160,000 | 20.0% |
Ledger total £800,000. An illustrative client with a 15% concentration limit.
Taken line by line, the largest balance is 12% and within the limit. Taken as one company, Hartley Foods is 20% of the ledger and over it by £40,000.
Matching names needs judgement. “Ltd” and “Limited” are the same legal form, and so are “plc” and “Public Limited Company”. But “Hartley Foods Ltd” and “Hartley Foods LLP” are different legal entities and should not be added together automatically. Nor should two companies with similar names in different trades. Where the evidence is unclear, check the company number on the invoices or at Companies House, and ask the client. A false match overstates concentration. A missed one understates it, and that error is the one nobody notices.
Balances in other currencies
A client exporting to Europe may carry debtors in euros. If those balances are added to the sterling ledger at face value, both the ledger total and each debtor’s share are wrong.
Suppose a French customer owes €58,000. At an exchange rate of €1 = £0.86, that is £49,880. Counted as £58,000, the debtor appears larger than it is and the ledger total is overstated. With the dollar or a weaker currency, the error runs the other way. Either way the share is wrong.
Convert every balance to sterling before adding anything up, and record the rate and its date so the figure can be checked. Where no rate has been agreed, leave the balance out of the total and say so, rather than counting it at face value.
Contras
If the largest debtor is also one of the client’s suppliers, part of its balance may never be paid in cash. It can set off what it is owed against what it owes. For concentration, the question is how much of the balance you can actually collect. The smaller of the two balances is at risk, so a debtor owing £160,000 that is owed £30,000 back has a collectable balance nearer £130,000. Note both figures: the gross balance for the limit, and the net balance for what you can rely on.
Measuring it consistently
A concentration figure is most useful when it is measured the same way every time. A practical routine:
- Take the full aged debtors report, not just the top ten, so that small accounts under other names are included.
- Match names to companies before ranking anything, using company numbers where they are available.
- Convert to sterling at a recorded rate.
- Rank by combined balance, and measure each debtor’s share of the converted ledger total.
- Compare with the limit and with the last audit.
Done this way, the figure can be compared from one audit to the next, and a change means something has changed in the ledger, not in how it was counted.
Across your whole book
Concentration within one client is only part of the picture. If two of your clients both supply the same large customer, your exposure to that customer is the sum of both. The same name-matching applies across clients as within one. Until duplicates are matched, any book-wide figure will understate exposure to your largest names.
What the audit adds
The client’s own report will rarely show a breach, because the client’s system treats each account as a separate customer. An audit reads the ledger as a financier would: one company, one balance, in one currency. The result is a concentration figure you can rely on, a list of the debtors behind it, and, where the limit is breached, the size of the excess you are funding.