Sources of Short-Term Financing

Trade Credit

Payment Period

30 to 60 days

Cash Discount Policy

Incentive that a seller offers to a buyer in return for paying a bill before the due date

Net Credit Position

Determined by the relationship between accounts payable and receivable

Prime Rate and LIBOR

Rate a bank charges most creditworthy customers

London Interbank Offered Rate (LIBOR)

Compensating Balance

Required to obtain a loan

Maturity Provisions

Term Loan

Credit is extended for one to seven years

Loan

Monthly or quarterly installments

Cost of Commercial Bank Financing

The effective interest rate on a loan is based on the

Loan amount

Dollar interest paid

Length of the loan

Method of repayment

Interest Cost with Compensating Balances

Interest/(1-c)

Rate on Installments Loans

Calls for a series of equal payments over the life of the loan.

Anual Percentage Rate

A measure of the effective rate we have presented

The Credit Crunch Phenomenon

Investment capital becomes hard to obtain, when there is a lack of funds

Pledging Accounts Receivable

Using accounts receivable as collateral for a loan

Factoring Receivables

Selling accounts receivable to a finance company or a bank

Asset-Backed Public Offerings

Public offerings backed by receivables as collateral

Trust Receipts

Acknowledges that the borrower holds the inventory and proceeds from sales in trust for the lender

Warehousing

Goods are stored by an independent warehousing company

Engage in a transaction that reduces a prior risk exposure