1. Sources of Short-Term Capital
Item Analysis Workshop, APPS

2. What is short-term financing?
Short-term financing deals with the demand for and supply of short-term funds which may either be secured or unsecured

3. ADVANTAGES
DISADVANTAGES
Easier to obtain
Often less costly
Offers flexibility to the borrower
Mature more frequently
At times, may be more costly than long-term debts

4. Cost of Credit
Firms which extend trade credit normally provide incentive to firms which settle their accounts early. The incentive takes the form of a discount if settled within specified number of days.

5. #of day’s credit – Discount Period
Formula
Annual cost of
not taking
discount =
Discount
1 - Discount X
360 days
#of day’s credit – Discount Period

6. Sample Computation
A sales on account bears the following terms: 2/10, n/30.

7. Suppliers of Short-Term Funds
Trade Creditors
Trade Credit Instruments
Open-book credit
Trade acceptance
Promissory note

8. Open Book Credit
An unsecured credit instrument that permits the customer to pay goods delivered to him in a specified number of days.
 A credit system in which merchandise may be received based only on the promise of payment. (thelawdictionary.org)

9. Trade Acceptance
Time draft drawn by a seller upon a purchaser, payable to the seller as payee, and accepted by the purchaser as evidence that the goods shipped are satisfactory and that the price is due and payable.
Bill of exchange that is accepted (signed) only by the drawee (party on whom it is drawn, usually a buyer or importer), and is not countersigned by the drawee’s bank. Such bills are only as good as the drawee's creditworthiness. (businessdictionary.com)

10. Promissory Note
An unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand or at a fixed or determinable future time, a sum certain in money to, or to the order of, a specified person, or to bearer.
A promissory note typically contains all the terms pertaining to the indebtedness by the issuer or maker to the note's payee, such as the amount, interest rate, maturity date, date and place of issuance, and issuer's signature. (investopedia.com)

11. Suppliers of Short-Term Funds
Commercial Banks
Types of Short-Term Loans
Unsecured Loans
Secured Loans

12. Suppliers of Short-Term Funds
Commercial Paper Houses
Finance Companies
Major types of finance companies
Sales finance companies
Business/commercial finance companies
Personal finance companies

13. Suppliers of Short-Term Funds
Factors
Insurance Companies
Company Accruals