Master Drawing Power Calculation to Unlock More Working Capital

For Indian SMEs and startups relying on working capital finance, understanding drawing power (DP) is critical. It determines the actual credit a business can access at any point, regardless of the sanctioned limit. A well-managed DP calculation directly impacts liquidity, operational continuity, and growth potential.

This blog outlines what drawing power means, how it is calculated and how businesses can optimize it to unlock more working capital.

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What is Drawing Power (DP) in Working Capital Finance?

Drawing Power (DP) is the actual amount a business can withdraw from its sanctioned working capital credit limit at any given time. It is recalculated regularly, usually monthly based on up-to-date statements of inventory and receivables.

DP ensures that the amount borrowed is always backed by current, eligible assets, preventing over-borrowing and protecting both the borrower and the lender.

Read More: Types of Working Capital Loans: Meaning, Benefits & Examples

Key Points:

• DP is dynamic and changes with asset values.
• Only eligible, paid, and insured assets are considered.
• DP is always the lower of the sanctioned limit or the calculated eligible amount.

For businesses with ₹5 Crores+ in annual revenue, fast-track debt options of up to ₹10 Crores can provide immediate working capital when DP-based limits fall short or delays impact operations.

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Core Formula for Drawing Power Calculation‍

The standard formula used by Indian banks is:

DP=(Stock+Book Debts−Creditors)−Margin

Component Breakdown:

• Stock: Includes raw materials, work-in-progress, and finished goods. Only paid and insured stock is counted; unpaid or uninsured inventory is excluded.
• Book Debts: Only receivables (debtors) less than 90 days old (or as per sanction terms) are eligible. Older debts are excluded.
• Creditors: Trade payables are deducted from the asset base.
• Margin: A percentage (typically 25–40%) set by the bank to cover asset risk. This is deducted from the net eligible assets.

DP shows how much credit you can access. Here’s what the different scenarios mean:

• DP > Loan Balance: You have room to borrow more.
• DP = Loan Balance: Your borrowing capacity is fully used.
• DP < Loan Balance: You risk a margin call, meaning the lender may ask for repayment or additional collateral.

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Step-by-Step Example

• Inventory: ₹3.50 crore
• Book Debts (under 90 days): ₹2.00 crore
• Creditors: ₹1.00 crore
• Margin: 25%

Step 1: Add Inventory + Book Debts
₹3.50 crore + ₹2.00 crore = ₹5.50 crore

Step 2: Subtract Creditors
₹5.50 crore – ₹1.00 crore = ₹4.50 crore

Step 3: Calculate Margin
25% of ₹4.50 crore = ₹1.125 crore

Step 4: Final Drawing Power
₹4.50 crore – ₹1.125 crore = ₹3.375 crore

If the sanctioned limit is ₹5.00 crore, the business can only use ₹3.375 crore until asset values increase.

Pro Tip: Even if your sanctioned limit is ₹10 crore, you may only be able to draw ₹6–7 crore if you don’t actively manage your DP components. 

Companies with ₹40 Cr+ in annual revenue can access structured debt of up to ₹100 Cr independent of DP constraints through Recur Club.

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5 Ways to Boost Your Drawing Power

Here’s how to ensure you’re getting the most from your sanctioned limit:

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1. Maintain Accurate, Real-Time Stock and Receivables Data

Banks recalculate DP monthly or quarterly. Ensure:

• Your accounting and inventory systems are synced.
• You submit monthly stock and debtor statements on time.
• Figures match physical stock and actual customer dues.
• Keep inventory and receivables data clean and updated to avoid surprises in your DP limit.

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2. Control Debtor Aging (Receivables ≤90 Days)

Receivables over 90 days are ineligible. To avoid reduction in DP:

• Automate invoice follow-ups.
• Monitor debtor aging reports regularly.
• Focus collections on invoices nearing 90-day mark.

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3. Ensure Adequate and Updated Stock Insurance

Only insured inventory is considered. To stay eligible:

• Match your insurance coverage with current stock value.
• Update policies when stock levels rise.
• Submit valid proof of insurance with reports.

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4. Exclude Ineligible or Inflated Stock

Don’t include:

• Unpaid or under-credit goods.
• Obsolete or unsellable items.
• Inventory not yet in your possession.

Regular internal audits can help ensure compliance and preserve credibility.

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5. Align with You Sanction Letter Terms

Every sanction letter outlines margin %, eligible debtor days, and reporting frequency. You should:-

• Review and follow these conditions strictly.
• Adjust internal systems to match.
• Negotiate longer eligibility (e.g. 120-day book debts) if needed.

Read More: Loan Refinance: Pros and Cons, Meaning, Types, and How It Works

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Conclusion

Mastering drawing power calculation is essential for Indian SMEs and startups that depend on working capital to run daily operations and fuel expansion. With accurate reporting, strategic control of receivables, and alignment with lender expectations, businesses can unlock higher credit access and maintain healthy liquidity.

At Recur Club, we help fast-growing businesses improve capital access with:

✔ Collateral-free credit up to ₹10 Cr

✔ Funding offers in just 48 hours

✔ A trusted network of 150+ lenders

✔ Capital advisors who structure the right deal for you.

Connect with us today and make drawing power work in your favour so your business never runs short of momentum.

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