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Different Springs of Business Finance
Anyone who want to gain some knowledge about the industry, must also be prepared to earn a bit of business finance. You need to begin with understanding the short term finance. Short terms finances refer to cash that is needed to take care of the current needs of a business. A business may need short-term funding to cater for taxes, wage payments or salaries, repair expenses among others.
The reason for that need is that sales and purchase payments are not always the same. You could also find some times when purchases are made cash, but sales are on credit. That will make a massive difference in purchases and sales. In This situation the business owner is allowed by the bank to remove more than what the business has in the bank. Many sources supply short-term fianc? as shown in the list below. The first source of finance is the bank overdraft. Bank overdraft is one of the causes that are widely used as a source of business finance.
The another source is when bills of exchange are cut by the bank. That can become a source of money to the owner of the bill immediately to cater to the pressing needs. There are other times when companies may confirm orders from customers and ask them to pay before delivery. That is what the corporations use at times when they want to execute the order. What other businesses do to use the installment purchases. What happens is that the deferred payments are used to take care of other financial needs. Sometimes bill of lading becomes a source of immediate cash that the business needs through bank loans.
The other source of finance for many businesses use the trade credit. This is a situation where businesses buy raw materials and spare parts on credit. That means that the businesses increase their bills payable to be paid in future. when the goods are paid the money is not paid immediately, and that money can be used for other needs.
There are times when the businesses use what is called medium-term financing. This is a situation where the business needs to meet some medium-term like say five years requirements. In most cases the financing is needed for purchasing equipment. The businesses obtain such medium-term financing from the banks or other financial institutions. What the banks do is to provide the money needed to buy the equipment and the business is left to pay in installments. The other common source of such financing is the hire purchase. The purchaser is permitted o pay some amount and the rest to be paid is small monthly installments.