short-term financing

compensating balance

demand deposits maintained by a firm to compensate a bank for services provided, credit lines, or loans

receivable factoring

factor usually charges a factoring fee for bearing credit risk and servicing the receivables

commitment fee

fee charged by the lender for agreeing to hold credit available

revolving credit arrangement

formal, legal commitment to extend credit up to max amount over a stated period of time

line of credit

informal arrangement between a bank and its customer specifying the maximum amount of credit the bank will permit the firm to owe at any one time

discount

interest is deducted from the initial loan; results in a higher effective interest rate; payment of interest rate

receivable factoring

interest may be charges when the firm takes a cash advance before the receivables are due

collect basis

interest paid at maturity; payment of interest rates

chattel mortgage

lien on specifically identified personal property backing a loan

trade credit

may be free or costly

letter of credit

promise from a third party (usually a bank) for payment in the event that certain conditions are met

terminal warehouse receipt

receipt for the deposit of goods in a public warehouse that a lender holds as collateral for a loan

trust receipt

security device acknowledging that the borrower holds specifically identified inventory and proceeds from its sale in trust for the lender

receivable factoring

selling of receivables to a financial institution, the factor, usually "without recourse"

commercial paper

short term, unsecured promissory notes, generally by large corporators (highest interest rate)

prime rate

short-term interest rate charged by banks to large, creditworthy customers

bank's acceptances

short-term promissory trade notes for which a bank (by having "accepted" them) promises to pay the holder the face amount at maturity

spontaneous & negotiated

types of short-term financing

approximate annual interest cost on cash discount not taken / nominal annual cost of credit

(% discount) / (100% - % discount) X (365 / [payment date - discount period])

effective annual interest

(1 + [total interest + total fees paid) / usable funds) ^ (365 / tenor of loan) - 1

trade credit

* accounts payable * notes payable * trade acceptances

check benefits of stretching accounts payable against costs such as:

* forgone discount * late penalties or interest that may be charged * deterioration in credit rating

negotiated short-term financing

* money market credit * bank loans * receivable factoring

spontaneous short-term financing

* trade credit * accrued expenses

floating lien

a general, or blanket, lien against a group of assets, without the assets being specifically identified

secured loans

can be backed by either receivables or inventories

bank loans

can either be secured or unsecured