Which collateral type is commonly associated with aging and concentration risk?

• A. Accounts receivable
• B. Inventory
• C. Equipment
• D. Real estate

Answer: (A)

Accounts receivable as collateral is the one most closely tied to aging and concentration risk. The value of AR depends on customers actually paying their invoices, so as receivables age, the likelihood of collection declines. This aging effect forces lenders to scrutinize the aging schedule (current, 30–60 days, 90+ days) and often to apply reserves or discount the collateral to reflect expected losses.

Concentration risk is also prominent with AR because a large portion of the receivables can be tied to a small group of customers. If those customers default or slow their payments, a big chunk of the collateral could lose value, amplifying risk for the lender.

In contrast, inventory mainly faces aging risk in the form of obsolescence or spoilage, equipment risks relate to wear and depreciation, and real estate risks are more about market value and geographic concentration rather than aging of receivables.