A borrowing base can look strong on paper but still overstate how much cash a business can really access. The same trouble spots show up again and again: Medicaid pending, recoupments, refunds, and credit balances. If these aren’t well understood and properly reserved, the borrowing base may include dollars that will never turn into usable cash.

The main issue is simple: not all accounts receivable are equally collectible. In reimbursement-heavy industries, some balances are uncertain, and others may need to be paid back later. If those risks aren’t reflected in the borrowing base, the result is a number based more on optimism than reality.

Take Medicaid Pending. These claims can sit in Accounts Receivable (A/R) for a long time while eligibility is sorted out. Some will get paid, some will pay late, and some won’t pay at all. Without using historical data to estimate what will actually convert to cash, these balances can make receivables—and borrowing capacity—look higher than they should.

Recoupments are less obvious but just as important. When payers take back prior overpayments by reducing future payments, the original receivable may still sit on the books. But the cash tied to it is already spoken for. If recoupments aren’t tracked and reserved, the borrowing base can appear stronger than future cash flow will support.

Refunds and credit balances create a similar problem. Credit balances often come from overpayments or billing issues that will need to be corrected. Leaving them in A/R makes assets look larger while hiding the fact that money may have to go back out. In reality, these amounts act more like liabilities than receivables.

The borrowing base is supposed to be a conservative measure of available cash. When these categories are ignored, availability can drop quickly during an audit, field exam, or cash crunch. A more disciplined approach—reviewing Medicaid Pending, tracking recoupments, resolving credit balances, and reserving for refunds—may lower the number on paper, but it gives a far more accurate picture of liquidity.

It’s better for the borrowing base to reflect reality, not best-case assumptions. Clear visibility into these adjustments helps avoid surprises and ultimately supports smarter financial decisions.