Sources of Short-Term Financing参考.ppt

Sources of Short-Term Financing 8 Chapter 8 - Outline Sources of Short-Term Financing Trade Credit Net Credit Position Types of Bank Loans Corporate and Foreign Borrowing Accounts Receivable Financing Inventory Financing Longer-term Loans Sources of Short-Term Financing There are various sources of short-term funds available to a firm: Trade Credit from Suppliers Bank Loans Corporate Promissory Notes Bankers’ Acceptances Foreign Borrowing Loans Against Receivables and Inventory Trade Credit Approximately 40 percent of short-term financing is in the form of accounts payable or trade credit Accounts payable Is a Spontaneous source of funds Grows as the business expands Contracts when business declines Payment Period Trade credit is usually extended for 30–60 days Extending the payment period to an unacceptable period results in: Alienate suppliers Diminished ratings with credit bureaus Major variable in determining the payment period: The possible existence of a cash discount Cash Discount Policy Allows reduction in price if payment is made within a specified time period Example: A 2/10, net 30 cash discount means: Reduction of 2% if funds are remitted 10 days after billing Failure to do so means full payment of amount by the 30th day Net-Credit Position Determined by examining the difference between accounts receivable and accounts payable Positive if accounts receivable is greater than accounts payable and vice versa Larger firms tend to be net providers of trade credit (relatively high receivables) Smaller firms in the relatively user position (relatively high payables) Bank Credit Provide self-liquidating loans Use of funds ensures a built-in or automatic repayment scheme Changes in the banking sector today: Centered around the concept of ‘full service banking’ Expanded internationally to accommodate world trade and international corporations Deregulation has created greater competition among other financial institutions Prime Rate and LIBOR Prime rat