The full form of CC account is Cash Credit account.
A Cash Credit (CC) account is a type of short-term loan facility extended by banks to businesses, enabling them to withdraw funds up to a specified limit without necessarily maintaining a credit balance. Think of it as a readily available line of credit that businesses can tap into as needed for working capital requirements.
Here's a breakdown of what that means:
- Cash: It involves readily available funds.
- Credit: It's a loan or line of credit extended by the bank.
Key Features of a Cash Credit Account:
- Working Capital Financing: Primarily used to finance day-to-day business operations, such as purchasing inventory, paying suppliers, and covering operational expenses.
- Credit Limit: The bank sets a maximum amount that the business can borrow at any given time.
- Interest: Interest is charged only on the amount actually withdrawn, not the entire credit limit.
- Repayment: Repayments are typically flexible, with businesses able to deposit funds back into the account as they generate revenue, thereby reducing the outstanding balance and interest charges.
- Security: Banks usually require collateral, such as inventory, accounts receivable, or other assets, to secure the cash credit facility.
Example:
Imagine a small retail business needs to purchase a large quantity of seasonal inventory. Instead of taking out a term loan, they can use a Cash Credit account. They withdraw the funds needed to buy the inventory. As they sell the inventory and receive payments from customers, they deposit the money back into the CC account, reducing the outstanding balance and interest owed.
