Business overdrafts vs revolving credit facilities vs FlexiPay: Which is right for your business?

Having access to flexible funding often helps with managing business cash flow, and businesses have several options to choose from. While traditional business overdrafts have long been a go-to solution, alternatives like revolving credit facilities (RCFs) and FlexiPay from Funding Circle offer different approaches for managing business finances. Knowing the differences can help you make the right choice for your business needs.

The ins and outs of business overdrafts 

Most business owners are familiar with overdrafts. They’re a traditional form of finance that extends your business bank account balance beyond zero up to an agreed limit. Your business bank typically provides the overdraft, and you’ll pay interest on any overdrawn amount. 

While overdrafts offer convenience through their direct link to your business account, they almost always come with annual renewal fees and the bank can reduce or withdraw the facility at their discretion.

One of the main advantages of overdrafts is their immediacy. Once approved, you can access additional funds through your regular business account. Convenience comes at a cost however. Interest rates can be variable and relatively high, and banks may review and adjust your limit based on your account behaviour. 

Many businesses find that relying solely on an overdraft can become expensive over time, especially if they regularly use the facility.

How revolving credit facilities work 

A revolving credit facility provides more independence from your bank account while maintaining similar flexibility. Think of it as a credit agreement that lets you withdraw and repay funds repeatedly up to your approved limit. 

Unlike an overdraft, you can access RCFs through specialist lenders rather than being limited to your business bank. It means you can shop around for better rates and terms.

RCFs can offer higher credit limits than overdrafts and may provide more stability since they’re usually agreed for a fixed term, often between one and three years. They do, however, still have variable interest rates, and you might face arrangement fees and annual charges. 

Businesses usually need to demonstrate a strong trading history and credit profile to qualify for an RCF.

The FlexiPay approach

FlexiPay represents an alternative that combines flexibility with predictable costs. Unlike traditional options, there are no setup fees or annual charges. Instead of ongoing interest, it uses a simple fixed fee per transaction model. You can withdraw funds directly to your business bank account whenever you need them, just like you would with an overdraft or RCF. 

Plus, FlexiPay gives you even more payment flexibility, as you can also pay by card or make direct transfers to suppliers. For any payment type, you choose how you want to repay—spreading costs over 1, 3, 6, 9 or 12 months. You’re in more control of your repayment schedule without worrying about variable interest rates or hidden charges.

What sets FlexiPay apart is its transparency and flexibility in repayment terms. When you make a payment, you know exactly what the fee will be upfront, and you can choose a repayment schedule that aligns with your cash flow. Having this option is particularly valuable for businesses with seasonal fluctuations or those who want to take advantage of bulk purchase discounts without straining their immediate cash resources.

Business funding compared: overdrafts, revolving credit and FlexiPay

Each of the financing options on the table suits different business scenarios. For example, a retail business might use an overdraft to cover small, day-to-day shortfalls in cash flow. A business with varying seasonal demands might find FlexiPay’s flexible repayment terms particularly useful for managing inventory purchases or paying suppliers.

FlexiPay may also offer unique advantages for businesses looking to maintain strong supplier relationships. Providing the ability to make upfront payments while spreading the cost means it helps businesses take advantage of early payment discounts or bulk purchase offers without compromising their working capital. The fixed fee structure also makes it easier to calculate the exact cost of financing, enabling better financial planning.

Side-by-side

Feature	Business overdraft	Revolving credit facility	FlexiPay
Cost structure	Variable interest rate + fees	Variable interest rate + fees	Flat fee  from 1.5% per transaction Fee free when you pay off your card balance in 1 instalment
How you pay	Through bank account	Drawdown funds into bank account	Transfer funds to a supplier or drawdown directly into your back account. Also comes with a card to make payments online or on the go
Repayment terms	Monthly minimum payments	Monthly minimum payments	Choose between 1-12 months
Provider	Your business bank	Specialist lenders	Funding Circle
Application	Up to 10 mins but existing relationship with bank required	Detailed documentation needed, with approvals taking around 24 hours	Complete your 4 min application, get an instant decision and start making payments within as little as 30 mins
Flexibility	Can be reduced by bank	Fixed term agreement	Flexible instalments plans, choose between 1, 3, 6, 9, or 12 month repayment terms

Making the right choice 

When choosing between these options, consider several factors:

Cost structure

Compare the total cost of borrowing, including all fees and charges. While overdrafts and RCFs charge variable interest rates plus potential fees, FlexiPay’s fixed fee per transaction model offers more predictability.

Flexibility

Consider how each option aligns with your business’s cash flow patterns. FlexiPay’s variable repayment terms offer more control over when and how you repay, while overdrafts and RCFs provide continuous access to funds but less flexibility in repayment structures.

Access and eligibility

Think about how quickly you need access to funds and what eligibility criteria you can meet. While overdrafts typically require a relationship with your business bank, both RCFs and FlexiPay can be accessed through alternative providers, potentially offering more competitive terms.

Flexible borrowing

The right choice depends on your business needs and how you want to manage payments. While traditional options like overdrafts and RCFs come with variable interest rates and ongoing charges, FlexiPay offers a simpler way to take control of your cash flow. With its transparent fixed fee structure, flexible repayment terms and the freedom to choose how you pay, FlexiPay gives you the power to make business payments on your terms.

Learn more about FlexiPay from Funding Circle

31/12/24: While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.