Credit Options

Credit Options

Working capital finance options include overdrafts and invoice discounting.

Credit Options

Working capital finance options include overdrafts and invoice discounting. Some lenders also provide financing options that enable businesses to spread major payments over a longer period.

Business Overdraft

This is the main form of financing for day-to-day expenditure or working capital requirements and is linked to the business's bank current account. An overdraft allows you to spend more money than is actually in your account. The amount by which your account can be overdrawn is agreed in advance and interest will be charged on the overdrawn amount. The bank may also charge a set-up or renewal fee for the overdraft facility.

Business Credit Cards

Credit cards enable businesses to pay for and track expenditure and avail of short-term credit. The outstanding balance on the account is usually cleared each month. If the account is not cleared, interest on the remaining balance may be charged.

Invoice Discounting

Businesses often have significant sums tied up in debtors - money due from customers for goods or services provided and for which the business has issued an invoice for payment. Invoice discounting allows a business to get cash from its sales invoices earlier than it would otherwise be able to. It works by giving you access to a pre-determined percentage of invoiced debt. A bank may agree to immediately advance up to 80% of the value of approved outstanding invoices. One of the main benefits of invoice discounting is that the amount of credit used increases or decreases in line with the value of outstanding invoices.

Factoring

Businesses with unsatisfactory or inadequate internal credit management and administration systems may choose to sell off a portion of their debtors, at a discount, to a financial institution or company in return for a one-off payment. The factoring company plays a more direct role in collecting outstanding debts than with invoice discounting.