Working Capital Finance which is also commonly known as CC Limit (Cash Credit Limit) or OD Limit (Overdraft Limit) is actually the finance of Capital invested in Current Assets or Working Capital. Every Business at any point of time have some capital invested in Stock, Book Debt etc., which although recovered very frequently or almost daily but again invested, hence the level of investment remains the same all the time. To fund this, Banks normally sanction CC Limit or negative withdrawal capacity where according to the need, business can withdraw and again deposit when it recover, its a regular cycle.
If CC Limit is wisely used it can create huge profit in the business. Some thumb rules for the use of CC Limit is the turnover of the business should be ATLEAST 5 times of the Working Capital Finance taken. Further Recovery from debtors should also be good and advisable to keep the level of 30 days. Then we should try to pay our Creditors in the maximum time allowed to us, to keep the maximum liquidity in the business.
Working Capital Finance should never invested in Fixed Assets, which may create blockage of funds for day to day business.