Cash Credit vs Overdraft: A Founder's Plain-Language Comparison

Both let you borrow only what you use

Cash Credit (CC) and Overdraft (OD) are both revolving facilities — you draw what you need, repay, and redraw, paying interest only on the amount actually utilized rather than the full sanctioned limit. The difference is what each is built for and what typically secures it.

Cash Credit: built for ongoing working capital

CC is typically sanctioned against stock and receivables specifically, and is meant for a recurring working-capital cycle — buying inventory, financing receivables, running day-to-day operations. Lenders usually expect it to be used and repaid continuously, not drawn once and left outstanding.

Overdraft: built for short-term, irregular gaps

OD is typically linked to a current account and used for shorter, less predictable cash gaps — it can be secured or, for well-established relationships, available against a lower or no collateral requirement, but usually at a smaller ticket size than a dedicated CC facility.

A worked example

A trading business with predictable seasonal stock cycles is usually better matched to a CC facility, sized to that inventory cycle. The same business facing one unexpected delayed payment from a client is better served drawing on an OD for a few weeks, rather than restructuring their CC limit for a one-off gap.

What actually determines which one you get

Lenders look at your stock and receivables cycle for CC, and your account relationship and cash flow pattern for OD. Neither is inherently cheaper — compare the effective cost (interest plus processing and renewal fees) against your actual usage pattern before assuming one is the better deal.