Question

Briefly explain any two sources of short term finance.

Answer 1

Two sources of short-term finance are :

Public Deposits: Public deposits are the deposits raised by business organisations directly from the public. These deposits usually offer a higher rate of interest as compared to interest on bank deposits. This source fulfills the medium as well as short term financial requirements of the business. Any individual willing to deposit money in a business firm can do so by fulfilling a prescribed form. In return, a firm issues a deposit receipt as an acknowledgement of the debt. Public deposits are considered to be an important source for raising funds because their cost to the company is less than that of borrowings from banks.

Trade Credit: It refers to the credit provided by one firm to another for the purchase of goods and services. It is a source of short-term financing and facilitates the purchase of goods and services without immediate payment. The volume and period of credit extended by the business firms varies from one industry to another and from one firm to another. Also, it varies from customer to customer in a particular firm. The various factors affecting the volume and period of credit include the reputation of the purchasing firm, the volume of purchases, past record of payment, etc.