Slow-Paying Customers
Cover temporary cash-flow gaps while waiting for customers or commercial debtors to pay outstanding invoices.
BUSINESS OVERDRAFT & WORKING CAPITAL
Business Overdraft Finance for When Cash Flow Doesn't Line Up.
A profitable business can still experience cash-flow gaps. Customers may take time to pay while wages, suppliers, rent, stock and other expenses continue. A business overdraft can provide access to a revolving pool of funds when you need additional working capital.
WHY BUSINESSES USE OVERDRAFTS
Extra Cash Flow When Timing Doesn't Line Up
An overdraft is generally designed for shorter-term working-capital needs rather than funding a large long-term purchase.
Wages & Suppliers
Maintain access to working capital when payroll, supplier invoices and operating expenses fall due before customer receipts arrive.
Seasonal Cash Flow
Businesses with seasonal revenue may need additional liquidity during quieter periods or while preparing for peak trading periods.
Unexpected Expenses
A pre-arranged facility can provide a cash-flow buffer when unexpected operating expenses arise.
HOW A BUSINESS OVERDRAFT WORKS
A Reusable Limit Rather Than a One-Off Lump Sum
Subject to the facility terms, an overdraft can generally be drawn, repaid and used again up to the approved limit.
1
Determine the Funding Need
We look at why the business needs working capital, the size of typical cash-flow gaps and how frequently the facility may be required.
2
Review Business Cash Flow
Depending on the lender, financial statements, transaction history, business turnover and other financial information may be considered.
3
Establish a Limit
If approved, the lender establishes a maximum facility limit based on the business and its assessed working-capital requirements.
4
Draw Funds When Needed
The business can generally access funds up to the available approved limit, subject to the conditions of the facility.
5
Repay as Cash Comes In
Incoming business cash can reduce the outstanding balance and restore available capacity under the facility.
6
Reuse the Facility
Subject to the approved limit and lender terms, repaid funds can generally become available to draw again when the business needs them.
PAY FOR WHAT YOU USE
You Generally Pay Interest on the Amount Drawn
Unlike a standard term loan where the full loan amount is advanced upfront, an overdraft provides an approved limit that may only be partly used.
Interest is generally calculated on the amount actually outstanding rather than the unused portion of the approved limit, although facility, line or other fees may also apply.
This can make an overdraft useful where a business needs flexible access to money but does not need the full amount continuously.
Discuss your working-capital requirement →SIMPLE EXAMPLE
Approved limit doesn't necessarily mean fully drawn.
$100K
Approved overdraft limit
$35K
Amount currently being used
$65K
Remaining available limit
OVERDRAFT OR BUSINESS LOAN?
They Solve Different Funding Problems
Choosing the right facility starts with understanding whether the funding need is temporary and recurring or a defined longer-term expense.
Business Overdraft
Generally suited to fluctuating working-capital requirements where funds may need to be drawn, repaid and accessed again.
Business Term Loan
Generally better suited to a defined funding requirement where a set amount is borrowed and repaid progressively over an agreed term.
Asset Finance
Where the purpose is specifically to purchase a vehicle, machinery or equipment, dedicated asset finance may be more appropriate than using working capital.
THE CASH-FLOW GAP
Expenses don't wait for customers to pay.
01
Business delivers goods or services
02
Wages and suppliers need to be paid
03
Customer payment arrives later
WORKING CAPITAL CYCLE
Profitable Doesn't Always Mean Cash Is Available Today
A business can make a profit on paper while still experiencing periods where outgoing payments arrive before incoming cash.
For example, a business may complete work today, invoice the customer and then wait 30 or 60 days for payment while wages and supplier invoices must still be paid.
A working-capital facility can help bridge that timing gap, provided the underlying business has the capacity to repay the borrowing as cash flows through.
Talk through your cash-flow cycle →WHAT WILL A LENDER LOOK AT?
The Limit Should Make Sense for the Business
Requirements vary, but lenders generally want to understand both the reason for the facility and how the business expects to repay amounts drawn.
Business Cash Flow
Revenue, expenses, profitability and transaction patterns can help demonstrate how money moves through the business.
Understand the cash cycleExisting Commitments
Existing loans, leases, asset finance and other financial commitments may form part of the lender's overall assessment.
Understand existing debtFacility Purpose
A clear explanation of the working-capital requirement and how the facility will operate can be important when presenting the application.
Understand the funding needUSING AN OVERDRAFT WELL
A Cash-Flow Tool — Not a Permanent Substitute for Cash Flow
An overdraft can provide flexibility, but the facility still needs to fit the financial position of the business.
Temporary Funding Gaps
Overdrafts are generally most useful when the balance fluctuates as money enters and leaves the business.
Monitor the Balance
If the facility remains permanently near its maximum limit, it may indicate that the business requires a different funding structure.
Review the Facility
Business requirements change over time. The limit, pricing and facility structure should be reviewed periodically to ensure they remain appropriate.
WHY TULIP FINANCE
Working Capital Finance Should Match How Your Business Actually Operates.
Business cash flow rarely moves in a perfectly straight line. Different industries can have very different payment cycles, seasonal requirements and working-capital needs.
We help understand the funding requirement, compare suitable business-finance options and structure the facility around the way money actually moves through your business.
Learn more about Tulip Finance →BUSINESS OVERDRAFT FAQs
Questions About Business Overdrafts?
Here are some of the common questions businesses ask when considering a working-capital facility.
What is a business overdraft?
A business overdraft is generally a revolving credit facility that allows a business to access funds up to an approved limit. Subject to the facility terms, amounts repaid can generally become available to use again.
Do I pay interest on the full overdraft limit?
Interest is generally calculated on the amount actually drawn rather than the entire unused limit. However, facility, line, establishment and other fees may apply depending on the lender and product.
What can a business overdraft be used for?
It is commonly used for working-capital requirements such as temporary cash-flow gaps, wages, suppliers, stock and other operating expenses, subject to the lender's facility conditions.
How much overdraft can my business obtain?
The available limit depends on the business, financial position, cash flow, facility purpose, security where applicable and lender credit criteria.
Do I need property security for a business overdraft?
Not necessarily. Secured and unsecured business facilities may be available depending on the lender, requested limit, business profile and overall application.
Is an overdraft better than a business loan?
Neither is automatically better. An overdraft may be more appropriate for recurring short-term cash-flow requirements, while a term loan may be better suited to a defined longer-term funding purpose.
Can an overdraft limit be reviewed or changed?
Yes. Depending on the facility, lenders may periodically review the overdraft and may assess the business again when considering a request to increase the limit.
NEED MORE BREATHING ROOM IN YOUR CASH FLOW?
Let's See Whether an Overdraft Is the Right Facility.
Tell us about your business, turnover, cash-flow cycle and working-capital requirement and we can help you understand the available funding options.
Information on this page is general in nature and does not take into
account your individual objectives, financial situation or needs.
Business overdraft limits, interest rates, fees, security requirements,
review conditions and credit criteria vary between lenders and facilities.
An overdraft is a form of debt and amounts drawn must be repaid in
accordance with the relevant facility terms. Please refer to our
Disclaimer and Credit Guide for further information.