I think everyone will admit that adult life is associated with the need to manage money. Even if we do not manage the assets of a large company, each of us must manage a household budget, even the one-man one. Even if we have mastered this art to perfection, this is not synonymous with the fact that we will not look for additional financing. Not only those who need to fill a hole in the budget need financial support, but also those who want to grow, invest and increase profits.
On the financial products market, we can find many opportunities, including those dedicated to companies. From high investment loans to loans that cover current expenses. One of the products that can be extremely useful is overdraft. What is an overdraft facility, how it works and who it is addressed to, you’ll find out below.
Running a business is governed by its own laws. If we want to increase profits and earn more and more, leaving our competitors in style, we must ensure continuous development. Investments are an inseparable element of doing business. However, that is not all. For the smooth functioning of the company, it is also necessary to ensure financial liquidity. Not one company has ceased operations due to late transfers from customers. Lack of funds for running a business, fees and salaries for employees can quickly lead to collapse.
The problem of financial liquidity also very often affects seasonal companies, where we can distinguish months of increased production, when the financial outlays needed to start production are several, a dozen or even several dozen times higher than in the off-season months. Responsible management of the company’s budget is currently not enough. A good entrepreneur must be flexible and, in times of crisis, not limit ourselves to the opportunities that lie ahead. One of them is the current account loan, which can significantly support the company’s current operations.
Overdraft is closely related to the need to have a bank account. It is addressed to companies. However, it doesn’t matter if we run a one-man business and this is our personal account, or if we run a large company with legal personality and the account is strictly for the needs of the company. The funds obtained in this way are to finance the current needs of the company. However, the specific purpose for which we can use the capital from an overdraft is arbitrary and does not require documenting the use of funds before the bank. The funds obtained in this way can be allocated to the purchase of necessary materials and products, payment of invoices, coverage of fixed expenses or repayment of liabilities, including loan installments or loans.
Overdraft facility mechanism
Overdraft is to enable the company to maintain financial liquidity by settling current expenses and liabilities. This is possible thanks to the increase in the amount of cash on the account that is at the company’s disposal. Depending on the limit the bank has given us, the entrepreneur has at his disposal, in addition to his own funds accumulated on the account, an additional amount that he can use at any time.
This means that we have more funds at our disposal than we actually accumulated on the account. For subsequent withdrawals from the account, we first use our own funds. After using them, we use the limit granted to us. In turn, each inflow to the account is primarily used for partial or full coverage of the debt, and only after its settlement is credited to our account.