Cash credit statement

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Smrity (Querist)

15 August 2011 Someone please tell me how a CC account operates. What is the cc limit, what is the margin and what is the drawing power. Please also explain me the calculation with an example.

CMA Nishad Patkar

CMA Nishad Patkar (Expert)

16 August 2011 Dear Smrity,

The CC (Cash Credit) Account is like a Bank overdraft facility, whereby you can wihtdraw the money as per your requirement.

Following are the characteristics of CC Account.
1. It is a kind of working capital Finace to meet the working capital requirement of the company.
2. It is allowed agaginst Hypothecation of Stock (RM/ WIP/ FG) and Book Debts (Domestic).
3. You Need to Submit Monthly Drawing power Statement along with Book Debts Statement and Stock Statement to Bank within the stipulated time. (For e.g. 10th of Suceeding Month. Moreover Same Statement Certified by Practicing CA for (June, Sept, Dec, Mar)
4. Rate of Interest is varied from Bank to Bank. (Currently it is Base Rate+ (between 1 to 1.50%)Finance Cost is high in Nationalized Bank compare to private Banks.
5 Margin is between 12.5% to 25% of Sanctioned Limit which will renewed annually.
6. Annual or Semi Annual Review conducted by bank.
7. Annual Stock Audit will be coducted by the CA appoited by Bank.

Drawing Power Calculation

Stock(RM/WIP/FG)---- 1000
Less: Sundry CRs----- 400
Paid Stock----------- 600
Less Marging (say 25%
of paid Stock) 150
Balance( A)----- 450
Book Debts (Domestic) 500
Less: Margin (Say 30%)- 150
Balance (B)------------ 350
Total(A+B)------------- 800
Less: O/s CC Bal (as on
last day of Month as per
CC Statement of Bank) 300
Drawing Power 500

Note: Above Mentioned Power subject to Sanctioned Limit. For Instance if Sanctioned Limit is Rs. 400 the it would be Rs. 400. Further Margin Percentage change as from bank to bank and depends on solvency position and credit Ratings

With Regards,

Nishad

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