If there is a banking product essential for the excellent organization of a business, that is the credit account. There are also a few more unjustly reviled, precisely because of the difficulty of respecting their rules of use.
What is unique about the credit account?
It is an appropriate instrument to manage the treasury so that you never get “short” between collections and payments. You know that your charges are irregular, but to a certain extent foreseeable in date. As for the payments that you have to make, you know their maturities and their amounts. If for example, you charge 60-90 days and you have to pay most of your expenses to 30 days, you will have moments when you need to “adjust.”
You could also do it with your own money, in the case of having cash at your disposal reserved for that purpose. However, the most frequent thing is to resort to the credit account, and if you have enough money to have it profitable in financial assets in the short term.
The most exciting feature of a credit account , which makes its correct use is so difficult is that having a total amount to dispose or “limit”, you can only have what you need and re-enter to leave it again to zero as before of the gap, and have the possibility to do it again and again . The interest that will be charged will be the previously agreed and only for the amount you have used.
We can assimilate its operation to another well-known banking product, which in this case would be the credit card.
If we use the credit card to the extent you need it and pay it in the month, leaving it back to zero, it does not cause any particular problems. If, on the other hand, we postpone the payments, we end up having the whole limit and seeing ourselves with a debt that at the beginning we do not have.
In the case of the credit account, the non-systematic replenishment of the amounts provided leads you to spend the limit granted in full until it is exhausted, at which time you find yourself with a new debt, which you did not have before, and without being able to cover the treasury lags.
But in this case, unlike the card, which is renewed month by month, even if you do not manage to reduce it and maintain minimum payments, we do have explicit expiration. The credit account is a short-term operation, which has a temporary period usually in force for one year. It can even be off less time when it is granted “on trial” it can also be six months.
Once the period is over, two things can happen: it can be renewed (that is, it can be given again), or it can not be extended. In this last case, you have to pay all the money you have arranged.
If this happens, it can logically occur that you do not have this amount available , and in order to collect you “convert” it into a loan, renewing it as a “credit account with limit reductions”, you agree to pay in certain terms, and a once paid you can not use it again, de facto it is like a loan, which is amortized and decreasing the amount owed. This bank will “close the tap” for the remains.
How Do You Get To This Situation?
First, by staying short when requesting the amount you consider necessary. Naturally, and in principle, it seems logical, you want to ask for as little as possible, to pay less interest on the one hand, and on the other facilitate your concession.
Adjust too much is an error because we can find that we are “short” with what we need, which does not serve to cover the gaps in their entirety and we can see the current account discovered that we wanted to avoid.
It is not like a loan if you need it you have and pay interest, if you do not need it they charge you a commission on the unused amount, an amount that is not usually important and certainly not comparable with the interest. The most desirable thing is that using the history of the treasury of your business you see that month you have had higher obligations, and on that amount, you exceed at least 10%.
If you are granted a credit account, and it is systematically used in more than 90%, it can also be because your business is going well and you need more financing. In this case, the best decision is to diversify your money providers, which are not banks at all.
When asking for a credit account in another bank, you have several advantages; you no longer depend on a single entity, and also both are calmer because of the other one “trusts” you. In a matter of banks, trust has a price, and this can also be reflected in the interest rate of the new renegotiations.
The best move in terms of your treasury management is to combine your current account with the credit account, and together with the management of your collections and payments, taxes and other services negotiate as a global “package” the concession of the same Although at first it is only granted for six months, it is better to request it from the beginning, rather than being “caught” and have discovered in current account that will generate a lousy history in order to ask for any credit operation.
In summary, the credit account is the typical operation that must be had “just in case,” with the idea of using it as little as possible. Of course, as it is going to be an umbrella, that covers our whole, and that one bank gives us the umbrella and the other the raincoat, that the competition is very healthy for all.