contador Saltar al contenido

Difference between cash credit (CC) and overdraft (OD)

Business organizations need funds to meet their monetary needs. The loans provided by banks for this purpose can be long term or short term. Nowadays people / entities choose a short-term loan, in the form of cash and overdraft credit. Cash credit a type of instrument provided by the bank or financial institution in which a company may withdraw an amount greater than what it holds to its credit against stock security.

In reverse, Bank Overdraft another structure, where the bank allows the customer to debit his current account below zero, but only up to a specified limit. So, there is always a question, which of the two structures should be chosen over the other. And for this, one must know the difference between cash and overdraft credit, so take a look at the article and understand the term clearly.

Comparative chart

Basis for comparison Cash credit Uncovered
Sense Cash credit is a type of short-term loan provided to companies to meet their working capital needs. The discovered a function provided by the bank to companies, to withdraw money "more" than the balance available in their respective accounts.
Safety Commitment or inventory hypothesis. Activities such as financial instruments and property.
account Cash credit account Current profile

Definition of cash credit (CC)

Cash credit a type of short-term loan in which the withdrawal of money by the company is not limited to the amount that the borrower holds in his cash credit account, but up to a predefined limit.

The cash credit account works like a checking account with the checkbook function. The structure is provided for pledging or mortgaging stocks, i.e. raw materials, work in progress, finished products, etc. Or on the guarantee of book debts (debtors) or other collateral as per banking rules. The purpose of taking cash credit is to meet the company's working capital requirement. The cash credit limit should be equal to the company's working capital requirement less the margin financed by the company.

The withdrawal limit specified by the bank or financial institution and may vary from bank to bank and borrower to borrower. The bank charges interest on the amount used not to the sanctioned limit. The bank has the right to ask for money lent at any time.

Definition of Overdraft (OD)

I discovered the act of withdrawing money from the bank account. Bank Overdraft a service provided by the bank to its customers who withdraw money more than the amount they hold in their account.

The overdraft sanctioned limit predefined by the bank based on the securities committed or the repayment capacity of the account holder. The withdrawal limit specified by the bank, or the financial institution may vary from one bank to another and the borrower to the borrower. Interest charged on the amount used not to the sanctioned limit. The amount withdrawn beyond the specified limit will be subject to additional costs.

Overdraft repayable on request, i.e. the bank has the right to call the money lent to the customer on short notice. The checkbook provided to the account holder to manage these accounts.

When the overdraft facility provided without any security to meet urgent financial needs, known as overdraft overdraft. However, when it is provided against the safety of goods such as land and buildings, stocks, bonds, etc. known as discovered discovered .

Key differences between cash credit (CC) and overdraft (OD)

The following points are noteworthy regarding the difference between cash credit and bank overdraft:

  1. The withdrawal function provided by the bank in which the person can withdraw amounts more than he holds to his credit, against the mortgage of shares or any other collateral known as cash credit. The overdraft is another withdrawal function where the bank allows the customer to withdraw an amount greater than what it holds to its credit, but only to a certain degree known as overdraft.
  2. Cash credit divided into two categories, namely key cash credit and open cash credit. The discovered divided into two types, ie discovered discovered and discovered discovered.
  3. For the cash credit facility, the borrower must have a cash credit account with the bank or financial institution. Conversely, the overdraft facility can be used by the borrower if he has a bank account.
  4. The cash credit line granted against the pledge or suppuration of stocks or other current assets or collateral. The possibility of overdraft granted for the security of fixed assets (if securitized).

Similarities

  • Payable on request
  • Money can be withdrawn more than the amount available in the account.
  • Safety
  • Limit
  • Credit line

Conclusion

To meet the company's working capital requirement at the time of "necessity", banks provide many facilities. These facilities include cash credit, overdraft, bill discount and working capital loan, etc. Cash credit and overdraft are the most popular; they are very similar in many respects. The difference between cash credit and overdraft quite subtle. But I discovered one of the older concepts than cash credit.