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1 March 2011

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Our practice has cash-flow problems due to a reduction of our monthly contract sum. How do we increase our current overdraft, or should we apply for a loan instead?

It is important to consider whether the reduction in cash flow is a permanent or a short-term issue. If you think it is short-term because you are confident that the funds will be available in the future then the recommended course of action would be to agree overdraft facilities to support the immediate cash-flow concern.

An overdraft is designed to provide flexibility on a short-term basis only. Most banks would be favourable to offering overdraft facilities to support short-term needs, but would require confirmation that the required income will be generated in the future to support ongoing working capital. If the cash-flow issue was seen to be permanent, a practice loan would be a more appropriate funding option because it gives you the opportunity to reduce 
the debt over a period of time on a more 
structured basis.

I would encourage any practice that is experiencing cash-flow concerns to discuss their situation with their bank as early as possible, as that will give them the best chance of finding the right solution. We talk through all the options with our customers to ensure the solution fits the individual situation.