How is an Overdraft defined in financial terms?

An overdraft is defined as a facility provided by a bank that allows an account holder to withdraw more money than is available in their account, up to a certain limit. This means that if a business or individual has an account with an overdraft facility, they can effectively 'borrow' funds on short notice, which is particularly useful for managing cash flow and unexpected expenses. This borrowing is typically arranged in advance with the bank and is usually settled within a relatively short time frame.

The other options do not accurately represent what an overdraft is. Long-term bank loans refers to financing that is repaid over a long period and generally involves larger sums of money, rather than the short-term nature of an overdraft. Investments made in stocks involve purchasing shares in companies and are not related to borrowing facilities. The collection of outstanding debts pertains to accounts receivable, which involves money owed to a business and does not involve the action of borrowing from a bank. Therefore, the definition of an overdraft as borrowing from the bank through cheques on short notice is the most accurate portrayal of this financial term.