CASH CREDIT WHAT?

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• https://www.yes.bank.in/
• https://www.yes.bank.in/blogs/msme/what-is-cash-credit

• Banks provide cash credit to businesses as a short-term loan up to a certain limit. Businesses can withdraw this money when their account lacks the necessary funds. Unlike traditional loans, cash credit works as a revolving credit facility, meaning businesses can withdraw, repay, and borrow again within the predetermined limit set by the bank.

• Let's understand the workings of cash credit with an example. XYZ Ltd. is a clothing company, and the bank has approved a cash credit limit of Rs 70 lakh based on its working capital needs. The company uses Rs 40 lakh to cover the purchase of materials for a new project. XYZ Ltd. will now pay interest only on the Rs 40 lakh used, not on the full limit of Rs 70 lakh.

  After a few weeks, the company receives payments and repays Rs 20 lakh of the amount borrowed. The pending balance is now Rs 20 lakh, and interest will be charged only on this amount. XYZ Ltd. can continue to borrow from the remaining credit limit of Rs 50 lakh as needed.

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  Uses of cash credit

  • Managing working capital: Sometimes, businesses need urgent funds for their day-to-day operations. Cash credit provides immediate funds for inventory purchases, employee wages, and other expenses.

  • Meeting short-term financial needs: Businesses often experience delays in payment from their clients. However, they still need to pay their suppliers to keep the business operating. In such instances, cash credit helps bridge this gap by providing quick access to funds.

  • Covering seasonal business cycles: Many businesses, especially in industries like retail and agriculture, face seasonal fluctuations in demand. Cash credit helps these businesses expand their operations optimally without facing financial burdens and maximise their profits. On the other hand, during slow periods, cash credit helps businesses run their essential operations smoothly, covering day-to-day expenses without straining their cash flow.
     

  • Covering unexpected expenses: A business can face any uncertainty like equipment breakdown or market fluctuations that demand immediate funds to maintain operations. Cash credit provides quick access to capital, enabling businesses to handle unexpected expenses such as emergency repairs, sudden increases in raw material costs, or other unforeseen challenges without disrupting cash flow.

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  • Importance of cash credit

    • Liquidity management: Cash credit helps businesses maintain liquidity. It gives businesses a steady flow of funds to meet their operational expenses, so they don't need to liquidate their assets.

    • Cost-effective borrowing: Since interest is only charged on the amount used, cash credit is more cost-effective than loans, which charge interest on the entire loan amount regardless of usage.

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• • Flexibility: Cash credit offers the flexibility of borrowing, repaying, and borrowing again. This flexibility ensures that companies have access to funds when they need them most without applying for new loans each time.

  • Improves business stability: Cash credit helps businesses gain financial stability by fulfilling their short-term money requirements.

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  • • Flexibility: Cash credit offers the flexibility of borrowing, repaying, and borrowing again. This flexibility ensures that companies have access to funds when they need them most without applying for new loans each time.

    • Improves business stability: Cash credit helps businesses gain financial stability by fulfilling their short-term money requirements.

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    • To sum up

      Cash credit is a valuable tool for businesses to manage short-term financial needs and keep operations running smoothly. For businesses that need a trusted partner to obtain cash credit, YES BANK is a go-to option, offering customised cash credit solutions designed to meet unique business

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