Credit Sweep

AAA

DEFINITION of 'Credit Sweep'

Also known as an automated credit sweep, this term refers to an arrangement between a bank and a customer (usually a corporation) whereby all idle or excess funds in a deposit account are used to pay down short-term borrowing under a line of credit. The client usually sets a target balance which will determine how much of its funds will be used.

BREAKING DOWN 'Credit Sweep'

This is a cash management tool that is especially beneficial to large corporations that have multiple accounts and great variablity in payments from day to day. Most credit sweeps also have the opposite arrangement, whereby if the funds in the account are less than the target balance, there will be a drawdown on the line of credit to reach the target.

RELATED TERMS
  1. Credit Ticket

    In accounting and bookkeeping, a credit ticket is a transaction ...
  2. Zero Balance Account - ZBA

    A checking account in which a balance of zero is maintained by ...
  3. Sweep Account

    A bank account that automatically transfers amounts that exceed ...
  4. Account

    1. An arrangement by which an organization accepts a customer's ...
  5. Line Of Credit - LOC

    An arrangement between a financial institution, usually a bank, ...
  6. Tenured Capital

    Loans offered by the government to key business sectors.
Related Articles
  1. Insurance

    Working Capital Works

    A company's efficiency, financial strength and cash-flow health show in its management of working capital.
  2. Investing Basics

    Understanding The Cash Conversion Cycle

    Find out how a simple calculation can help you uncover the most efficient companies.
  3. Entrepreneurship

    Small Business Loan Vs Line of Credit: How They Differ

    Understand the differences between a small business loan and a line of credit, and learn some of the most appropriate uses for each form of financing.
  4. Entrepreneurship

    5 Ways to Get Funding For Your Billion-Dollar Idea

    Understand how current billion-dollar companies gone about funding. Learn about five funding strategies to fund a billion dollar idea.
  5. Credit & Loans

    What's a Bridge Loan?

    A bridge loan is a loan that “bridges” a borrower over a temporary shortage in funds on hand.
  6. Credit & Loans

    What is a Syndicated Loan?

    A syndicated loan is one that involves a group of lenders (called the syndicate) who pool their lending resources to make a loan.
  7. Professionals

    What Does Corporate Finance Do?

    Corporate finance is the subset of finance that involves how corporations use leverage to fund their operations and capital purchases.
  8. Entrepreneurship

    Microfinance & Macrofinance: What's The Difference?

    What are the key differences between microfinance and macrofinance? Investopedia takes a look.
  9. Entrepreneurship

    How Microfinance and Investment Banking Compare

    Investment banks and microfinance institutions (MFIs) provide similar services, but the clients they serve and the incentives that motivate them are very different.
  10. Investing

    What is Debt Financing?

    When a company needs to pay for something, it can pay with cash, or it may finance the purchase. Financing means that it gets the money from other businesses or sources, in return for obligations. ...
RELATED FAQS
  1. Where do companies keep their cash?

    If you have ever looked over a company's balance sheet, you have no doubt noticed the first account under the current asset ... Read Full Answer >>
  2. What is the difference between "closed end credit" and a "line of credit?"

    Depending on the need, an individual or business may take out a form of credit that is either open- or closed-ended. While ... Read Full Answer >>
  3. What are typical forms of long-term debt for a public company?

    Public companies fund their operational needs and capital expenditures with equity or debt. Most often, companies choose ... Read Full Answer >>
  4. What is the difference between subordinated debt and senior debt?

    The difference between subordinated debt and senior debt is the priority in which the debt claims are paid by a firm in bankruptcy ... Read Full Answer >>
  5. How would a standby letter of credit be used during an export transaction?

    A standby letter of credit is typically used to provide a bank guarantee of payment for an exporter in the event that an ... Read Full Answer >>
  6. What are some reasons banks deny applications for checking accounts?

    Consumers and businesses use credit to finance major purchases or emergency expenses that exceed regular cash flow. Credit ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
  2. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
  3. Tiger Cub Economies

    The four Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand. Tiger cub economy indicates that ...
  4. Gorilla

    A company that dominates an industry without having a complete monopoly. A gorilla firm has large control of the pricing ...
  5. Elephants

    Slang for large institutions that have the funds to make high volumes trades. Due to the large volumes of stock that elephants ...
  6. Widow's Exemption

    In general terms, a widow's exemption refers to the amount that can be deducted from taxable income by a widow, thereby reducing ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!