Finance is defined as the provision of money at the time when it is required. Whenever any person starts the business either it is a long term or short term finance plays a very important role for the successful of our business. As blood is necessary for human being similarly finance is required in every business. No enterprise can possible without adequate finance.
Short term debt financing:
- Indigenous Bankers
- Trade Credit
- Installment Credit
- Advances
- Accounts Receivable Credit or Factoring
- Accrued Expenses
- Deferred Expenses
- Commercial Paper
- Commercial Bank
- Public Deposits
1. Indigenous Bankers:
They are private money lender. They are especially popular in those areas, which lack joint stock banks. They charge a very high rate of interest. But now days, with the development of the commercial bank they lost their monopoly. Because people gives more preference to the commercial bank as compared to indigenous banker because they charge a very high rate of interest.
The popularity of indigenous bankers is mainly due to the following reasons:
- They provide prompt and flexible credit.
- They have cordial relationship with the customers.
- They are also act as their friends and advisers.
2. Trade Credit:
In every business many transaction related to sale and purchased. For this purpose he needs finance. Bank provides a credit facility to the customer to fulfill the daily needs and this amount paid in installment. When not pay the amount in time then charges high rate of interest. Again he is not paid then in future never bank gives credit facility.
3. Installment Credit:
Installment credit (or an installment account/installment loan) is a type of credit where the consumer borrows a set amount of money and agrees to pay it back over a fixed period of time. The payment on an installment loan is the same every month.
4. Advances:
Business takes advance money from his customer against order. Especially in large scale industry. A cash advance is a service provided by most credit card and charge card issuers. The service allows cardholders to withdraw cash, either through an ATM or over the counter at a bank or other financial agency, up to a certain limit. For a credit card, this will be the credit limit.
5. Accounts Receivable Credit or Factoring:
Factoring is a financial transaction whereby a business job sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount in exchange for immediate money with which to finance continued business. Factoring differs from a bank loan in three main ways.
- First, the emphasis is on the value of the receivables.
- not the firm’s credit worthiness.
- Secondly, factoring is not a loan – it is the purchase of a financial asset (the receivable).
6. Accrued expenses:
An expense that is incurred, but not yet paid for, during a given accounting period. Accrual items like wages, salaries, interest and tax. All accrual expenses can be used as a source of finance. No interest is charged on accrual expenses, they represent a free source of financing.
7. deferred expenses:
- A deferred expense is not yet an expense, even though it has already been paid. The deferred expense is reported on a company’s balance sheet until it becomes an expense in a future accounting period.
- Paying the insurance premium prior to the start of the coverage period gives rise to a deferred expense.
8. Commercial paper:
Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note.It was introduced in India in 1990. It is issued at a discount to face value. It is issued as per RBI guidelines. It’s held in Demat form. It is unsecured. Commercial paper is usually issued in order to meet short term requirements rather than fund long term investments. A major benefit of commercial paper is that it does not need to be registered with the Securities and Exchange Commission (SEC). They are not allowed to be used on fixed assets, such as a new plant, without SEC involvement.
9. Commercial bank:
In the modern time bank plays a very important role in the process of economic development.
Images: economic development-> industrial development- finance- so bank plays a very important role for the economic development of the country.
A financial institution which provides services to a customer such as accepting deposits and giving business loans.
