CC in banks most commonly refers to Cash Credit, a short-term loan facility offered to businesses.
Cash Credit (CC) provides companies with immediate access to funds without needing to maintain a positive balance in their bank account. Think of it as a revolving line of credit, allowing businesses to borrow money up to a pre-approved limit as needed, making it a valuable tool for managing working capital and meeting short-term financial obligations.
Here's a more detailed breakdown:
- Short-Term Financing: CC is primarily designed to address immediate funding requirements, such as purchasing inventory, paying suppliers, or covering operational expenses.
- Revolving Credit: The borrower can withdraw funds, repay them, and then withdraw again up to the sanctioned limit. This revolving nature offers flexibility in managing cash flow.
- Interest Charges: Interest is charged only on the amount actually withdrawn and outstanding, not on the entire sanctioned limit.
- Security: Banks typically require collateral, such as inventory, accounts receivable, or other assets, to secure the cash credit facility.
- Working Capital Management: CC is an essential tool for businesses to bridge the gap between their short-term assets and liabilities, ensuring smooth operations and preventing cash flow shortages.
Example:
Imagine a clothing retailer needs to purchase a large stock of winter clothing before the season begins. They can obtain a cash credit facility from a bank. They draw funds to pay their suppliers, and as they sell the clothes and receive payments from customers, they repay the borrowed amount, freeing up the line of credit for future needs.
In summary, Cash Credit is a flexible and convenient short-term financing option that enables businesses to access funds quickly and manage their working capital efficiently.
