08 August 2013
Cash Credit and Overdraft, both fulfill the requirement of Working Capital of the borrowers. However, Cash Credit is for specific use of limit which is given on the basis of value of book debt and value of paid up stock. Limit of 75% is given calculated on (Value of book debt+Stock-Creditors). For this borrower is supposed to furnish the stock statements in given format of the bank on monthly basis based on which limit will be sanctioned.
Overdraft - An extension of current account in which the customer is allowed to withdraw more than the credit balance lying in the account. This may be a temporary accommodation to tide over temporary cash crunch or on a regular basis. If permitted on a regular basis, withdrawals are allowed up to a ceiling (called a limit), subject to availability of sufficient security with the bank.
Overdraft is generally for small working capital requirement but where larger funds are required C/C limit is preferred.
CAclubindia
