An Overdraft Facility is a flexible line of credit, which is designed to fund seasonable and or unexpected expenses.
Overdrafts are a particularly good facility as they can assist a business to help manage their cash flows better.
Essentially a facility limit is provided enabling a business to draw up to a formal limit to pay bills and general operating expenses, whilst waiting on income to be collected by the business.
Once the income is collected, the funds are simply credited to the overdraft facility to assist reduce the balance. As you only pay interest on the balance of the overdraft, accrued interest costs can be lessened by ensuring prompt collection of funds owed to your business.
Interest is calculated at a variable rate daily, which is then charged back to the overdraft monthly.
The majority of the lending institutions will charge a monthly or quarterly fee for providing the facility on an ongoing basis.
Funds are generally drawn from the account by issuing cheques. In addition to cheques, a number of lenders also enable you to draw funds from the account via ATMs, EFTPOS, Internet/online transactional processing and giroPOST.
