What is Overdraft?
Overdraft: Spending more than your account holds by borrowing from the bank.
Where Overdraft fits
Overdraft is part of Cash & Liquidity in Finance. Profit is an opinion, cash is a fact: a profitable company can still go bankrupt if cash runs out. Liquidity and working capital show whether you can pay bills on time.
Practical tip
Track cash weekly, collect invoices fast and keep the current ratio above 1.
Related terms
- Cash flow
- Money moving in and out of a business over time.
- Liquidity
- How quickly an asset can be turned into cash without losing value.
- Working capital
- Current assets minus current liabilities: money for daily operations.
Formulas you will use with it
Test yourself
Which term means: “Spending more than your account holds by borrowing from the bank.”?
Working capital · Overdraft · Cash flow
Answer: Overdraft
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