Using Overdrafts to Help Your Cash Flow

An overdraft is when the bank agrees to make a certain amount of money available to your business which you can access as you need it. Overdrafts are a useful way to access extra cash for working capital, especially when cash is tight, or you are waiting for a payment from a creditor.

Interest is charged daily, but only on the amount you’ve overdrawn, and is billed to your bank account on a monthly basis. There is usually an initiation fee to set up the overdraft facility and some banks charge a monthly fee if the overdraft facility isn’t used. This is to cover the cost of monitoring banking transactions to ensure they remain within the terms of the overdraft.

To qualify for an overdraft, you’d need a history of good money management and regular deposits into your account. The bank will work out the total amount of overdraft you’ll be able to access based on the income and expenses of the business.

Go to your bank or check via your online banking facility if you qualify for an overdraft, and if so, how much. You’ll never know unless you ask.

To read more about the different types of finance visit https://www.finfind.co.za/different-types-of-finance.