Various source of short-term financing are available to a firm.these sources may be grouped as spontaneous and non-spontaneous sources (negotiated financing).spontaneous sources of financing,which arise naturally as a part of doing business include trade credit and other payables . as the firm's sales increase ,accounts payable increase in response to the increase purchases required to produce at higher levels similarly ,in response to increasing sales the firm's accruals increase as wages and taxes on the firm's increased earning.thus, accounts payable ,accruals are spontaneous sources of short-term financing.
The negotiated source of short-term financing must be arranged on a formula basis .Bank lone ,commercial papers are major sources of negotiated source of short-term financing.
Short-term credit can also be classified as:unsecured and secured sources.unsecured loans include all those sources that do not require any collateral.firms with high credit rating are capable to use unsecured sources. secured loans require specific assets as collateral.inventories and accounts receivable can be used as collateral for secured short-term loan.
The negotiated source of short-term financing must be arranged on a formula basis .Bank lone ,commercial papers are major sources of negotiated source of short-term financing.
Short-term credit can also be classified as:unsecured and secured sources.unsecured loans include all those sources that do not require any collateral.firms with high credit rating are capable to use unsecured sources. secured loans require specific assets as collateral.inventories and accounts receivable can be used as collateral for secured short-term loan.
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