Why Position Count Doesn't Matter in Commercial Receivables Underwriting
- Apr 5
- 2 min read
Updated: Apr 6
Most funders have a hard rule. First or second position only. Anything past that, they walk.
I understand why. On the surface, a deal with five or six existing positions looks crowded. It feels risky. The assumption is that every additional position adds pressure to the business, and at some point, the whole thing breaks.
But that assumption is built on the wrong metric. Position count doesn't tell you whether a deal is safe or dangerous. It's just a number. It tells you how many buyers are already in the deal. That's it.
The number that actually matters is cashflow capacity.
What cashflow capacity means
Cashflow capacity is the amount of free cashflow a business has left after every existing obligation is serviced. Not projected revenue. Not gross deposits. The actual money left over after every daily payment goes out.
Here's a simple example. A business deposits $15,000 a day into its operating account. It has existing obligations that total $9,000 a day. That leaves $6,000 in free daily cashflow. That $6,000 is the number I underwrite. That's the room. That's the capacity.
Whether there are two positions or six positions on that deal doesn't change the math. If the free cashflow supports another purchase, the deal works. If it doesn't, it doesn't. The position number is irrelevant.
Why most funders get this wrong
The industry trained itself to think in positions. First position is "safe." Second is "acceptable." Third and beyond is "risky." That framework made sense when funders didn't have access to real time bank data and couldn't verify what was actually flowing through an account.
Today, I can pull three to six months of bank statements and calculate exactly what a business deposits, exactly what goes out to existing obligations, and exactly what's left. The data is right there. There's no reason to rely on a position number as a proxy for risk when you can measure the actual capacity directly.
How I underwrite
When I look at a deal, I don't start with "what position is this." I start with the bank statements. I calculate average daily deposits. I subtract every existing daily obligation. The remainder is free cashflow capacity.
Then I ask: does the purchase I'm considering fit inside that remaining capacity with enough margin for the business to operate? If yes, the deal is worth a deeper look. If no, it doesn't matter if it's first position or tenth. The math doesn't work.
Position count is a shortcut. Cashflow capacity is the underwriting.
The bottom line
If you're walking away from deals because the position number is too high, you're leaving good assets on the table. The question was never "how many positions are on this deal." The question is "how much room is left."
I measure room. Not positions.
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