Overdraft Facility

Overview: An overdraft facility is a line of credit granted by a bank that allows a business to spend beyond the available balance in its current account. This facility is often used to cover temporary cash-flow gaps, for example when customer payments are delayed or unexpected purchases arise. An overdraft usually carries an interest rate, and the bank may require the amount used to be repaid at short notice. While it can provide financial flexibility, a prolonged overdraft can prove expensive if poorly managed. Common Use Cases: Managing short-term cash-flow fluctuations. Avoiding rejected payments when the account balance is insufficient. Financing urgent purchases or unexpected expenses. Example: A small business has an authorised overdraft of €10,000. When its customers are late paying, it uses this line of credit to pay its suppliers on time, covering the interest charges until the funds come in.