Essay: Short Term Financing

Essay: Short Term Financing
08/06/2011 Comments Off on Essay: Short Term Financing Academic Papers on Business Studies,Sample Academic Papers admin

Sample Essay

The key sources of spontaneous short term financing are the ordinary business operations in a company and the company acquires financing from trade creditors such as accounts payable and notes payable. These modes of financing are a result of ongoing operations in a business and may relate to any operational aspect but the most common out of these are usually accounts payable, notes payable and accrued expenses. These liabilities or modes of short term financing are considered spontaneous because managers of the company are forced to apply for trade credit when cash is not available and when there is a dire need of financing and other modes are not available.

Spontaneous modes of short term financing are not borrowings but are in fact resultants of business operations to balance the working capital in a certain period of time. Spontaneous short term financing is related to sales in that in busy and peak seasons the company can purchase additional raw material on credit in order to meet high demand of customers. If these sources of financing are not available to the firm it cannot purchase additional raw material and thus cannot sell additional products. These financing options normally do not have a stated cost but if there is an interest rate quoted on credits this would be considered a cost of financing. This is usually the case with notes payable which have a specific interest rate attached to them and in some cases any delay in payment is also penalized by imposing an extra payment of cash (Carey and Essayyad 1990).

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