What Is Overdraft Frequency?
Overdraft frequency refers to the number of times an applicant’s account goes into overdraft over the course of a statement cycle. In MCA and small business lending, this metric is critical because repeated overdrafts suggest the business is struggling to cover daily expenses.
This measurement typically appears during bank statement scrubbing, when balances are analyzed line by line. Operators use overdraft frequency to evaluate account health and apply policy or appetite rules before moving a deal to underwriting.
How Does Overdraft Frequency Work?
Overdraft frequency is calculated by scanning daily balances and flagging overdraft events.
- Balance extraction: Daily closing balances are parsed from submitted bank statements.
- Overdraft detection: Days with negative balances are flagged as overdrafts.
- Counting events: The total number of overdrafts during the statement period is tallied.
- Risk context: Frequency is compared to funder rules, with higher counts marked as higher risk.
In Heron, overdraft frequency is surfaced automatically during scrubbing.
- Parsing step: Statements are ingested and balances extracted.
- Automated checks: Heron identifies each overdraft event without manual review.
- Structured outputs: Results such as “8 overdrafts this month” are written directly into CRM fields.
- Action routing: Deals with overdraft frequency above appetite thresholds are flagged, while clean submissions flow straight to underwriting.
This ensures overdraft history is quantified consistently and at scale.
Why Is Overdraft Frequency Important?
For brokers and funders, overdraft frequency is a key predictor of repayment risk. A business that repeatedly dips below zero may default under the added strain of new funding.
By automating detection, Heron makes sure no overdrafts are missed and that underwriting teams always have a clear, quantified view of risk. This saves time, improves accuracy, and strengthens portfolio quality.
Common Use Cases
Overdraft frequency analysis is used in underwriting and policy enforcement.
- Flagging applicants with overdraft counts above funder thresholds.
- Scoring account health by combining overdraft frequency with NSFs and negative-day counts.
- Writing overdraft frequency into CRM fields for underwriter visibility.
- Screening out submissions from businesses with chronic cash flow shortages.
- Escalating borderline cases to exception review queues.
FAQs About Overdraft Frequency
How does Heron automate overdraft frequency detection?
Heron parses daily balances from bank statements and counts each overdraft event. Results are written into the CRM so underwriters can see frequency immediately.
Why is overdraft frequency a strong risk signal?
Frequent overdrafts show that a business cannot consistently cover expenses. This pattern increases the likelihood of repayment issues and default risk.
What outputs should teams expect from overdraft frequency analysis?
Teams receive structured fields with overdraft counts, frequency ratios, and pass/fail indicators based on funder rules. These outputs flow directly into appetite screening and underwriting.