财管0273685988_ch11.ppt

Chapter 11 Short-Term Financing After studying Chapter 11, you should be able to: Understand the sources and types of spontaneous financing. Calculate the annual cost of trade credit when trade discounts are forgone. Explain what is meant by stretching payables and understand its potential drawbacks. Describe various types of negotiated (or external) short-term borrowing. Calculate the effective annual interest rate on short-term borrowing with or without a compensating balance requirement and/or a commitment fee. Understand what is meant by factoring accounts receivable. Short-Term Financing Spontaneous Financing Negotiated Financing Factoring Accounts Receivable Composition of Short-Term Financing Spontaneous Financing Accounts Payable (Trade Credit from Suppliers) Accrued Expenses Spontaneous Financing Open Accounts: the seller ships goods to the buyer with an invoice specifying goods shipped, total amount due, and terms of the sale. Notes Payable: the buyer signs a note that evidences a debt to the seller. Spontaneous Financing Draft -- A signed, written order by which the first party (drawer) instructs a second party (drawee) to pay a specified amount of money to a third party (payee). The drawer and payee are often one and the same. Terms of the Sale Net Period - No Cash Discount -- when credit is extended, the seller specifies the period of time allowed for payment. “Net 30” implies full payment in 30 days from the invoice date. Terms of the Sale Seasonal Dating -- credit terms that encourage the buyer of seasonal products to take delivery before the peak sales period and to defer payment until after the peak sales period. Trade Credit as a Means of Financing $1,000 x 30 days = $30,000 account balance Cost to Forgo a Discount Approximate annual interest cost = % discount 365 days (100% - % discount) (payment date - discount period) Cost to Forgo a Discount Approximate annual interest cost = 2% 365 days