What is credit sweeping?

credit sweeping is a useful financial tool available to many banking institutions. Sweeping usually works by determining the process in which any in -the -deposit account is used to pay for any existing credit line that the customer can currently open with the bank. This arrangement, sometimes referred to as a sweeping account, allows the customer to constantly settle the debt whenever there are other means available to protect the integrity of the credit rating.

In credit sweeping, the debtor's deposit account is organized so that at any time the account balance exceeds a minimum amount, these other funds are moved or swept to the loan balance. This minimum amount is often referred to as the target balance. Other funds are used as a payment on the loan line, which is a process that can not only help reduce the amount of interest payable on the credit line, but also prevent the debtor from missing reerially scheduled payments onoutstanding balance of this credit line.

For example, a small company can create this type of automated credit distribution to create a target balance for the company's operating account. This number is set at a level that allows business to always have enough money to pay for its sellers and handle different operating costs, but is less than the total amount of income received in the calendar month. Since the deposits are carried out on the account and the balance exceeds this target image, the bank automatically removes part of these special means, uses them to balance the loan line and alerts the customer of the transaction. If the customer has arranged for more than one Credit sweeping during each calendar month.

The concept of credit sweeping is relatively common worldwide. Large corporations sometimes use this strategy as a way to use the credit line forFinancing a project that is expected to become income in a short period of time. Depending on how structured sweeping is, the company must bear the burden of paying from its existing income sources only about a month before it takes the proceeds from the new project and eventually retire. Meanwhile, the Company makes timely payments on the credit line, thus helping to maintain its ability to draw from the credit line if and as needed.