15 August 2011
Someone please tell me how a CC account operates. What is the cc limit, what is the margin and what is the drawing power. Please also explain me the calculation with an example.
The CC (Cash Credit) Account is like a Bank overdraft facility, whereby you can wihtdraw the money as per your requirement.
Following are the characteristics of CC Account. 1. It is a kind of working capital Finace to meet the working capital requirement of the company. 2. It is allowed agaginst Hypothecation of Stock (RM/ WIP/ FG) and Book Debts (Domestic). 3. You Need to Submit Monthly Drawing power Statement along with Book Debts Statement and Stock Statement to Bank within the stipulated time. (For e.g. 10th of Suceeding Month. Moreover Same Statement Certified by Practicing CA for (June, Sept, Dec, Mar) 4. Rate of Interest is varied from Bank to Bank. (Currently it is Base Rate+ (between 1 to 1.50%)Finance Cost is high in Nationalized Bank compare to private Banks. 5 Margin is between 12.5% to 25% of Sanctioned Limit which will renewed annually. 6. Annual or Semi Annual Review conducted by bank. 7. Annual Stock Audit will be coducted by the CA appoited by Bank.
Drawing Power Calculation
Stock(RM/WIP/FG)---- 1000 Less: Sundry CRs----- 400 Paid Stock----------- 600 Less Marging (say 25% of paid Stock) 150 Balance( A)----- 450 Book Debts (Domestic) 500 Less: Margin (Say 30%)- 150 Balance (B)------------ 350 Total(A+B)------------- 800 Less: O/s CC Bal (as on last day of Month as per CC Statement of Bank) 300 Drawing Power 500
Note: Above Mentioned Power subject to Sanctioned Limit. For Instance if Sanctioned Limit is Rs. 400 the it would be Rs. 400. Further Margin Percentage change as from bank to bank and depends on solvency position and credit Ratings
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