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SHORT-TERM FINANCING AND FINANCIAL

PLANNING

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As in long-term financing, there are many sources for short-term financing including trade credit, family and friends, commercial banks, factoring, commercial paper, and internal sources.

Business use trade credit because even terms of 2/10, net 30 (the buyer can take a 2 % discount for paying within 10 days, the total bill
due in 30 days if the discount is not taken) mean savings of about 36 % annually. At one point a bank gives the firm a line of credit. It is
an agreement by a bank to loan a specified amount of money to the business at any time, if the money is available. A revolving credit
agreement is a line of credit that guarantees a loan will be available for a free.

The most difficult kind of loan to get from a bank or other finan­cial institutions is an unsecured loan. It is a loan that is not backed by
any collateral. A secured loan is backed by something valuable, such as property. If the borrower fails to pay the loan, the lender may take
possession of the collateral. That takes some of the risk out of lending money. Pledging is the term used for using accounts receivable as security.

One relatively expensive source of funds for a firms is called factoring. Factoring is the process of selling accounts receivable for
cash.

Sometimes a large corporation needs funds for a few months and wants to get lower rates than those charged by banks. One strategy is
selling commercial papers. Commercial paper consists of promissory notes maturing at 270 days or less. Commercial paper is unsecured, so
only the more financially stable firms can sell it. It is a way to get short-term funds for less than bank rates.

Financial planning involves short- and long-term forecasting, budgeting, and financial controls. Long-term and short-term forecasts
eventually are used to establish yearly budgets for a firm. There are usually several budgets:

(1) an operating budget (it is the projecting of dollar allocations to various costs and expenses given various revenues);

(2) a cash budget (it is the projected cash balance at the end of a given period);

(3) a capital budget (it is the spending plan for assets whose re­ turns take over a year).

The final step in funds management is to establish financial con­trol. It is a process that periodically compares the actual revenue
costs, and expenses with projection.

What is spreadsheet analyses? It is a technique for determining the effect on one account (for example, profit) by a change in another
account. For example, a business can quickly calculate the effect on profit of a change in interest rates, a lowering of products prices, or an
increase in shipping charges.

Дата добавления: 2015-11-16