When a business needs short-term funds to bridge cash-flow gaps, banks offer cash credit (CC) and overdraft (OD) facilities. They are similar but not identical.
This guide explains the difference and when each fits.
What is Cash Credit vs Overdraft?
Cash credit is a working-capital facility secured against stock and receivables, with the limit tied to those current assets. An overdraft lets you withdraw beyond your account balance up to a sanctioned limit, secured against collateral like FDs or property, or sometimes unsecured.
In both, interest is charged only on the amount used.
| Cash credit | Secured by stock/receivables; limit tied to them |
|---|---|
| Overdraft | Against collateral or account; broader use |
| Interest | Only on the amount utilised |
| Purpose | Short-term working capital |
Frequently asked questions
Is interest charged on the full CC/OD limit?
No. Interest is charged only on the amount actually drawn, not the sanctioned limit.
What secures a cash credit facility?
Typically the business's inventory (stock) and receivables (debtors).