Chapter 8: Sources of Short-Term Financing
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Accounts payable/ Trade credits are:
- a spontaneous source of funds - Grows as the business expands - Contracts when business declines
Effective interest on a loan is based on:
-Loan amount -Dollar interest paid -Length of the loan -Method of repayment
Cash Discount Policy
Allows reduction in price if payment is made within a specified time period
Compensating Balances
An average minimum account balance to be maintained as an alternate for fee charged by the bank for services rendered
Approximately 40 percent of short-term financing is in the form of:
accounts payable or trade credit
