Every company needs finance in order to run while major requirements are meet by raising long term capital, however for day to day operations company cannot rely on long term sources of finance and that’s where short term sources comes handy. Given below are the various short term sources of finance –
- Creditors or Trade Credit – When the firm buys goods from manufactures or suppliers there is a time interval between the goods reaches to company and the date on which company makes the payment. Normally it is between 45 to 90 days on which no interest is charged and therefore it is a useful source of money for the firm.
- Bank Overdraft – Bank overdraft facility is given by the banks to the customers who have current account, under this facility a customer can withdraw up to certain limit and the customer account balance can be even negative, however banks charges interest on the balance which is overdrawn.
- Factoring – Factoring is an arrangement which is done by the firm where the bank and the firm where the bank will buys the book debts of a company and pays the cash to the company against receivables and then collects the amounts from the debtors of the company.
- Advance received from customers – Sometimes companies receive upfront payment from customers which again is a good short term source of finance for the company.