Ineligible Accounts

AAA

DEFINITION of 'Ineligible Accounts'

Money that a company counts as an asset, but that a lender will not count as collateral. Ineligible accounts might include accounts receivable that are more than 90 days past due, foreign accounts and illiquid investments. Assets that a lender is likely to accept as collateral include inventory, equipment and accounts receivable that have been due for fewer than 90 days.

INVESTOPEDIA EXPLAINS 'Ineligible Accounts'

When a company requests a loan or line of credit, the bank will examine its financial statements and will only accept certain assets as collateral when determining the company's borrowing capacity. These assets make up what the bank calls "tangible net worth." As a condition of the loan, the bank may require the company to meet ongoing financial standards such as not taking on additional debt and not selling any items that have been pledged as collateral.


The reason why some assets would be considered ineligible as collateral, is that they might be too difficult for the lender to collect. The asset may also be too illiquid or, in the case of accounts receivable past 90 days, they are unlikely to be paid.

RELATED TERMS
  1. Cash Collateral

    Cash collected when liquid assets are sold during Chapter 11 ...
  2. Collateral

    Property or other assets that a borrower offers a lender to secure ...
  3. Non-Recourse Debt

    A type of loan that is secured by collateral, which is usually ...
  4. Accounts Receivable - AR

    Money owed by customers (individuals or corporations) to another ...
  5. Receivables Turnover Ratio

    An accounting measure used to quantify a firm's effectiveness ...
  6. Accident Year Experience

    Premiums earned and losses incurred during a specific period ...
Related Articles
  1. Entrepreneurship

    Will Insurance Keep Your Business Safe?

    Skilled employees are key to a successful business. Find out how to avoid a financial setback if they leave.
  2. Personal Finance

    Promissory Notes: Not Your Average IOU

    These may be a handy way to borrow money, but this convenience does not come without risk.
  3. Entrepreneurship

    The Impact Of Recession On Businesses

    Find out how this economic cycle affects both small and big business.
  4. Investing

    What is the difference between a non-recourse loan and a recourse loan?

    The essential difference between a recourse and non-recourse loan has to do with which assets a lender can go after if a borrower fails to repay a loan. As a matter of principle, borrowers almost ...
  5. Investing

    What is the difference between asset-based lending and asset financing?

    In the most common usage, the terms "asset-based lending" and "asset financing" refer to the same thing. Asset-based lending generally refers to a business using its assets as collateral for ...
  6. Mutual Funds & ETFs

    How do hedge funds use short selling?

    Learn how hedge funds use short selling to profit from stocks that are falling in price. Explore different analytical techniques hedge funds employ to find investments.
  7. Fundamental Analysis

    What is the difference between operating cash flow and net income?

    Learn how net income is an income statement for a certain period of time, while cash flow shows inflows and outflows based on conversion of sales into cash.
  8. Fundamental Analysis

    How do I calculate dividend payout ratio from a balance sheet?

    Understand what the dividend payout ratio indicates and learn how it can be calculated using the figures from a company's balance sheet statement.
  9. Credit & Loans

    When is it necessary to get a letter of credit?

    Capitalize on assets and negate risks by using a letter of credit. Letters of credit are often requested for buying, selling or trading.
  10. Fundamental Analysis

    Can entities other than banks issue letters of credit?

    Obtaining a letter of credit from a non-bank is legally acceptable according to the ICC, but companies tend to prefer to receive them from banks.

You May Also Like

Hot Definitions
  1. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  2. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  3. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  4. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  5. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  6. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
Trading Center