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Overdraft (OD) |
Revolving Credit |
Factoring |
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Usage |
To meet working capital needs such as payment of salaries, purchases, utilities etc. |
Short-term in nature to meet short-term working capital requirements |
To obtain short term financing of trade debts (sale of goods to customers on credit terms) |
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Features |
Made available via
current account |
A form of loan granted for a fixed period |
Financial institution purchases client’s trade invoices at a discount from the face value of the invoices and provides cash advances for business purposes |
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Interest is calculated on a
daily basis on outstanding balance at the end of each business day |
Convenient for companies with good financial standing |
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A commitment fee of 1% is charged on the unutilised portion of the facility |
Drawdowns by means of letter from the SME to the financial institution stating the period of the loan required |
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Benefits |
Flexibility in funds management provided the facilities are properly conducted and the business continues to operate satisfactorily
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Lower financing costs |
Quick and easy cash advances |
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Continuous availability of funds |
No collateral required |
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Able to sell on more competitive terms to credit customers |
