So you have an overdraft which you utilise for your business. Are you getting maximum benefit out of it and are you managing it for how it was designed to be used.

Typically an overdraft is used to help with your cash flow which is commonly found to be the hardest part to get right when managing a business. During your cash conversion cycle, which all business have to some degree but with varying days depending on your industry, your overdraft will be utilised to keep the business producing and paying bills such as wages and fixed costs throughout the cycle. However once the invoices have been sent out and your receivables start to pay you, your overdraft should move back into a credit position and the whole cycle starts again. Basically your overdraft should fluctuate on a regular basis between debit and credit throughout the cash conversion cycle.

A lot of business people say they need their high overdraft limits, but if the account doesn't fluctuate into credit then there is a portion of your overdraft not being used. For example you have an overdraft limit of $150,000 but the balance hasn't gone below $100,000 over the past 12 months, this means you are actually only using $50,000 of the overdraft and the remaining $100,000 is simply costing you interest as unutilised and overdrawn.

Overdrafts also traditionally have higher interest rates than term loans. You should consider bedding down the unused $100,000 as that will still be there in 5 or 10 years. If you structured a term loan over a 5 or 10 year period for the $100,000 and reduced your overdraft limit to $50,000 you will save on interest and will also have that unused portion gone after the 5 or 10 year term.  

If you do go down this path I would recommend that you reduce the overdraft limit as some business' will bed down the debt and not reduce the limit and find themselves in the same situation later on down the track. Your Bank will generally appreciate your proactivity in recognising an unused overdraft amount and will help to restructure this accordingly.