Advance is a credit facility provided by the bank to its customers. Advances are for a shorter period than loans.
Type of Advances:
- Overdraft: It is an arrangement in which a customer i.e. Current A/c holder, is allowed to overdrew money in excess of the credit balance in his account. It is allowed against collateral securities like – shares, F.D.R., Government securities, etc.
- Cash credit: In this mode of advance, a separate bank account called ‘Cash Credit Account is opened in the name of the borrower. He can withdraw from this account as and when required. It is allowed against security like – stock of raw materials, finished goods, etc.
- Discounting of Bills: Discounting of bills means encashing the Bills of Exchange before its due date with the banker. The bank charges a certain amount of interest for this service which is called a discounting rate.
