Short-term

Sources of
Finances
PRESENTED BY GROUP 7 :

NISHIT (37)

NITYA (38)

PRADNYA (39)

PRARATHANA (40)

PRATHAM (41)

PREYAS (42)

What are Short term

Finances
Short

term business finance facilitates

businesses and financiers to seize quick
business opportunities that require
transactions to be completed in short
time.

The highlight of this kind of finance is its

prompt availability to the businessman.

Short

term business finance is

appropriate for both new and existing
businesses.
Preyas

Sources of Short term

finance
Trade Credit

Bank Credit

Loan and
Advances

Installment
Debt
Credit
Factoring

Cash
Credit

Customer
Advances

Over Draft

Loans from
cooperatives

Discountin
g of bills

Preyas

Trade Credit
Creditextended

to a manufacturer

by suppliers who let you buy now

and pay later.
Any

time you take delivery of materials, equipment or

other valuables without paying cash on the spot,
you're usingtrade credit.

Trade

credit is an important external source of

working capital financing.

No

formal legal instruments/acknowledgements

of debt.

It

is an expensive source of finance, if payment is not

made within the discount period.

2/10

net 40 : If you pay in 10 days you get 2% cash

discount , else you can pay the amt. in 40 days
Preyas

Debt factoring
A

factor is afinancial intermediarythat

purchasesreceivablesfrom a company.

It

is a funding source that agrees to pay the

company the value of theinvoiceless a
discount for commission and fees.

Preyas

 The

factor is more concerned with the

creditworthiness of the invoiced party.

Although

factoring is a relatively expensive

form of financing, factors provide a
valuable service to:

Companies that operate in industries where

it takes a long time to convert
receivables to cash

Companies that are growing rapidly and

need cash to take advantage of new
business opportunities.
Preyas

Bank Credit

Commercial banks grant short-term finance to business

firms which is known as bank credit. When bank credit is
granted, the borrower gets a right to draw the amount of
credit at one time or in installments as and when needed.

OverDraft

Cash
Credit

Loan

Discounte
d bills
Nishit

Bank Guarantee

The bank gives a guarantee on behalf of the

debtor.

It is useful when a company wants to purchase

goods or machinery on credit or while securing
large contracts.

The bank pays the seller for non-performance of

the buyer.

Rates may range from .1% to .7% per quarter

depending on credit rating (AAA to BB)

Nitya

Bank Guarantee

Nitya

Letter of credit

Letter of credit is widely used in international

transactions.

The bank assures payment if the seller preforms

its obligation on time.

Then bank would then recover the money from

the buyer.

Rates may range from .15% to .75% per quarter

depending on credit rating (AAA to BB)

Nitya

Letter of credit

Nitya

Both are indirect source of financing

Credit is extended by the seller, but risk is

borne by the bank.

Nitya

Commercial Paper

Short Term unsecured promissory notes issued

by well known & financially strong companies

Traded mainly in primary market ; Resale in

secondary market is limited

It is rated as Prime , Desirable or satisfactory ;

Depending on the credit standing of the issuing
companies

Maturity range : min 7 days to max 1 year

Pradnya

Commercial Paper

Direct Paper : Issued by large companies or

bank holding companies directly to investors

Dealer / industrial paper : Issued by security

dealers on behalf of their corporate customers
Pradnya

Commercial Paper
Positives :

Carries higher interest payment rates than bonds

Sold at a discount from face value ; Buy back the

paper at its face value

Cheaper than bank loan

Negatives :

Only available to blue chip & profitable companies

Credit available from bank may get reduced

Closely regulated by RBI

Pradnya

Customer Advances

Represents a part of the

payment towards price on
the product (s) which will be
delivered at a later date

When the value of order is

quite large or things ordered
are very costly

Goods are not easily

available in the market or
there is an urgent need of
goods
Pradnya

Thank You