FIN/200 Week 7 Checkpoint
Trade credit is the most popular form of short term financing, figures show that over 40 percent of businesses use this form. Trade is also known as accounts payable. This form of short term financing happens when manufacturers or suppliers provide goods or services upfront to companies with the expectation of getting payment within 30 to 60 days from time of delivery. Usually suppliers may offer discounts if the receiving company makes payment within a specified period of time. This kind of short term financing would be chosen by businesses for many reasons such as the company may not readily have the cash on hand to purchase inventory. Bank Credit is another form of short term financing. This type of financing usually comes in the form of loans which normally have an agreement of repayment within 90 to 180 days, but companies can choose to have the loans renewed which can make them seem to be long term in nature. When banks issue bank credit they may have stipulations for their borrowers such as paying service fees or maintaining minimum balances in their accounts. A company may choose this type of short term funding when it may need emergency cash on hand for extra inventory or repairs. Commercial paper is another form of short term financing, this kind of funding is acquired by companies issuing promissory notes in increments of $25,000 or more. Only very large companies use this type of short term financing. Large companies would use commercial paper to get funding plant expansions new equipment.
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