Overadvance

DEFINITION of 'Overadvance'

A short-term commercial loan taken by a company in order to purchase more materials for its inventory in preparation for an expected period of increased sales. An overadvance is used to build inventory prior to a peak sales period. The loan amount taken out by the company temporarily exceeds its (borrower's) accounts receivables; the loans are generally commercial, and are usually short-term ranging from 30 days to one year.

BREAKING DOWN 'Overadvance'

For example, a company may expect increased sales of product ABC during the upcoming holiday season. The company does not have enough product to cover the expected demand for this period. In order to meet the anticipated demand, the company must purchase or manufacture additional products to increase the inventory, and can do so with an overadvance.

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