Annual Clean-Up

A banking practice that requires a borrower to pay off all balances of any renewable lines of credit and keep them at zero for 30 to 60 days or so. Although the annual clean up is a long-time tradition, it's becoming less common nowadays. Clean-ups aren't usually required on secured credit lines.

Also known as the clean-up requirement.

The annual clean up usually takes place when the customer is flush with cash. For instance, after a peak sales period when receivables have mostly been collected and cash needs for replenishing inventory are low. The clean-up shows that credit lines are being used only during periods of peak cash requirements and are not needed for the normal financing of the business.