Sources of Short Term Financing
- Short-term financing deals with raising of money required for a shorter periods i.e. periods varying from a few days to one year. There are, however, no rigid rules about the term. It may sometimes exceed one year but still be called as short-term finance.
- Easy and Convenient
- It allows companies to use money for other purposes
Failure to pay on time can present problems on future orders
Commercial paper is an unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meeting short-term liabilities. Maturities on commercial paper rarely range any longer than 270 days. Commercial paper is usually issued at a discount from face value and reflects prevailing market interest rates.
is property or other assets that a borrower offers a lender to secure a loan.
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Short Term Financing
Trade Credit
FINANCING
Trade credit applies to business-to-business trade, and has been an essential way for businesses to finance short-term growth. Vendors or suppliers do not typically extend trade credit to businesses that have yet to establish good credit, or that have not proven that they are able to make payments on time.
However, trade credit is a useful option for businesses to receive supplies crucial to growth without paying immediately. This way they can sell their product before payment is due, or use the freed up cash flow for other business purposes.
- Bank credit is an agreement between banks and borrowers where banks trust a borrower to repay funds plus interest for either a loan, credit card or line of credit at a later date. It is money banks lend or have already lent to customers.
Pag-IBIG Fund
A trade credit is an agreement in which a customer can purchase goods on account (without paying cash), paying the supplier at a later date. Usually when the goods are delivered, a trade credit is given for a specific number of days, say 30, 60, or 90 days. Jewelry businesses sometimes extend credit to 180 days or longer. Trade credit is essentially a credit a company gives to another for the purchase of goods and services.
Commercial Paper
Main Source of Short Term Financing
is a Philippine government-owned and controlled corporation under the Housing and Urban Development Coordinating Council responsible for the administration of the national savings program and affordable shelter financing for Filipinos employed by local and foreign-based employers as well as voluntary and self-employed members.
It offers its members short-term loans and access to housing programs.
- Trade credit
- Bank credit
- Commercial paper
- Foreign borrowing
- Collateral
- AR financing
- Inventory financing
- Hedging
The cost and terms of bank credit varies, depending on whether there is collateral involved, what competing banks are offering, and of course the borrower's creditworthiness.
Foreign Borrowing
Foreign borrowing is an outstanding loan or set of loans that one country owes to another country or institutions within that country. Foreign debt also includes obligations to international organizations such as the World Bank, Asian Development Bank or Inter-American Development Bank. Total foreign debt can be a combination of short-term and long-term liabilities. Also known as external debt, these outside obligations can be carried by governments, corporations or private households of a country.
Advantages
- Preserving your resources
- Growth
Disadvantages
Collateral
AR FINANCING
Accounts-receivable financing is a type of asset-financing arrangement in which a company uses its receivables — outstanding invoices or money owed by customers — to receive financing. The company receives an amount that is equal to a reduced value of the receivables pledged.
This type of financing helps companies free up capital that is stuck in unpaid debts. Accounts-receivable financing also transfers the default risk associated with the accounts receivables to the financing company.
By: Abdul Jamie M. Mama-o
Inventory Financing
Inventory financing is an asset-backed, revolving line of credit or short-term loan made to a company so it can purchase products for sale. Those products, or inventory, serve as collateral for the loan if the business does not sell its products and cannot repay the loan.
Inventory financing is especially useful for businesses that must pay their suppliers in a shorter period than it takes them to sell their inventory to customers.
Hedging
Making an investment to reduce the risk of adverse price movement of an asset.
A short hedge can be used to protect against losses and potentially earn a profit in the future. Short hedges are often used in the agriculture business where “anticipatory hedging” is often prevalent.