Work out the drawing power on a cash credit or working capital account from your monthly stock and book-debt statement. Every step is shown, so you can check the figure your branch has arrived at.
| Total stock | |
| Less: sundry creditors | |
| Net paid stock | |
| Less: margin on stock | |
| Drawing power on stock | |
| Total book debts | |
| Less: debts over the age limit | |
| Eligible book debts | |
| Less: margin on book debts | |
| Drawing power on book debts | |
| Total drawing power |
A cash credit limit is sanctioned once a year, but the amount you may actually draw is recalculated every month from the security you hold. That monthly ceiling is the drawing power, and it is built from two pieces: the stock you have genuinely paid for, and the receivables that are still young enough to count. Each piece is then cut back by a margin, which is the share the bank expects you to fund yourself.
Stock bought on credit has not been paid for. The supplier still has a claim on it, so it cannot also serve as the bank's security. Subtracting sundry creditors leaves the paid stock — the part that is genuinely yours to charge. This is the step most often missed when a borrower's own estimate disagrees with the branch's.
A debt that has aged past the cutoff in your sanction letter is treated as doubtful and valued at zero, not merely discounted. The cutoff is most commonly 90 days, but it is a sanction term rather than a universal rule, so check your own letter before assuming.
Given — stock ₹14,00,000 · creditors ₹3,00,000 · stock margin 25% · book debts ₹5,00,000 · debts over 90 days ₹1,00,000 · debtors margin 40%
₹10,65,000 is below the ₹14,00,000 sanctioned limit, so the cap does not bite and the operative drawing power is ₹10,65,000.
A stock statement used to fix drawing power should not be older than three months. Where the outstanding balance rests on a drawing power derived from a statement older than that, the account is treated as irregular — which is a supervisory problem for the branch as much as for the borrower. In practice this is why branches chase the monthly statement so hard.
It is the ceiling up to which you may actually draw within your sanctioned limit. It is recomputed every month from the stock and book-debt statement, so it moves with the security available, while the sanctioned limit stays fixed for the year.
No. The sanctioned limit is the maximum the bank has agreed to lend for the year. Drawing power is the lower, moving figure your security actually supports this month. You may draw only up to whichever is lower, which is almost always the drawing power.
Commonly 25 percent on paid stock and 40 percent on eligible book debts, but only your sanction letter is authoritative. Margins vary by bank, by industry and by borrower.
The account is irregular, and the excess is usually required to be regularised immediately. Sustained excess drawing is one of the standard triggers for an account being classified as a non-performing asset.
No. However strong the security, drawing power is capped at the sanctioned limit. If your stock and debtors support more than the limit, the surplus simply goes unused until the limit itself is enhanced.