While both Cash Credit (CC) and Overdraft (OD) are revolving credit facilities where interest is charged only on the utilized amount, they serve distinct business purposes and operate under different banking rules.
What Is a Cash Credit (CC) Facility?
A Cash Credit facility is a dedicated borrowing account designed for operational working capital. It is tied to the business's current assets—namely raw materials, work-in-progress, finished goods, and trade receivables.
- Primary Security: Hypothecation of inventory and debtors.
- Drawing Power Requirement: Monthly or periodic stock and book-debt statements determine the active limit.
- Primary Users: Manufacturers, distributors, traders, and service businesses with tangible turnover cycles.
What Is an Overdraft (OD) Facility?
An Overdraft facility is attached to a regular current account or established as a separate line of credit backed by specified collateral or fixed deposits. Unlike CC, an OD limit does not usually depend on monthly stock valuation statements unless specifically structured as an asset-backed OD.
- Primary Security: Fixed deposits, commercial or residential real estate, shares, mutual funds, or personal net worth.
- Operational Simplicity: Businesses can draw funds up to the sanctioned limit without submitting monthly drawing power calculations.
Key Comparison Table
| Feature | Cash Credit (CC) | Overdraft (OD) |
|---|---|---|
| Core Objective | Funding working capital gap (Stock + Debtors) | Short-term liquidity & flexible cash flow management |
| Primary Security | Inventory & Book Debts | Property, Fixed Deposits, or Financial Securities |
| Stock Statement | Mandatory monthly submission for Drawing Power | Generally not required for property/FD-backed OD |
| Annual Review | Yes, regular financial audit & renewal | Yes, annual renewal based on account conduct |
Consulting with experienced financial advisors helps identify whether a CC or OD structure best suits your cash flow profile.