Last Updated: Jun 6, 2019

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In the commercial finance world, dilution or A/R dilution refers to non-cash reductions to the A/R balance. Dilutive items, such as discounts, credit memos, and write-offs, dilute the value of accounts receivable, as they represent billed amounts that are not ultimately collected.

Some examples of dilutive items are as follows:

• Bad debt write-offs
• Credits issued for returns
• Discounts
• Contras
• Credits issued for co-op advertising
• Rebates
• Markdowns
• Billing Errors
• Short-payments
• Unremitted cash

The standard formula for dilution is as follows:

Dilutive Credits/ Gross Sales