Dilution
Asset-Backed Securities glossary · Asset Specific Nuances
Definition
In revolving facilities (particularly trade receivables), reductions in receivable balances not due to cash collection (e.g., credits, returns).
Dilution in plain English
When a company sells things on credit, it's owed money by its customers — those IOUs are called receivables. Dilution is when the amount owed shrinks for a reason OTHER than the customer actually paying cash: maybe they returned the product, got a discount, or were given a credit because something arrived broken. It matters because investors lending against those IOUs are counting on real cash coming in, and dilution quietly eats away at the pile without any money showing up. Think of it as invisible leakage — the debt disappears, but no dollars land in the bank.
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