In business studies, an overdraft facility refers to a banking service provided to businesses by allowing them to withdraw more money from their bank account than what is actually available. It is essentially a line of credit with the bank that allows the business to make payments even if they have insufficient funds in their account.
The overdraft facility is usually granted to businesses to cover short-term, temporary cash flow shortages or to manage unexpected expenses. It provides the flexibility to businesses to access additional funds in times of need without the need for formal loan applications or approval processes.
Interest is charged on the amount overdrawn and often calculated on a daily basis. The overdraft facility may be agreed upon for a specific period or granted as a revolving facility to be utilized as needed.
It is important for businesses to use their overdraft facility responsibly and ensure that it is managed effectively to avoid accumulating excessive debt and interest charges.
What is a overdraft facility in business studies
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