Die Arbeit stellt exemplarisch einige zins- und nicht zinsgebundene kurzfristige Finanzierungsmöglichkeiten (verschiedene Varianten von Bank- und Handlungskrediten) vor und nennt dabei Vor- und Nachteile der jeweiligen Instrumente. Schwerpunkt der Arbeit ist das Management des Working Capital mit Inventar- sowie Forderungsmanagement.
Table of Contents
Introduction
1. Financing
1.1 Systematization of Financing Alternatives
1.2 The Role of Working Capital
2. Alternatives in Short Term Financial Instruments
2.1. Interest bearing Short Term Financial Instruments
2.1.1 Overdraft credit
2.1.2 Discount credit
2.1.3 Advance against security
2.2 Non Interest bearing Short Term Financial Instruments
2.2.1 Trade Credit
3. Managing of Working Capital
3.1 Inventory Management
3.2 Accounts Receivable Management
3.2.1 Pledging of receivables
3.2.2 Factoring
3.2.3 Credit and Collection Policy
3.3 Managing Payables and Accruals
4. The Short Term Financing Decision
5. Conclusion
Objectives and Core Topics
This work examines the common alternatives for short-term financing available to companies, specifically analyzing the trade-offs between interest-bearing and non-interest-bearing instruments and the role of effective working capital management in maintaining liquidity.
- Systematization of short-term financing alternatives
- Interest-bearing instruments (Overdraft, Discount, Advance against security)
- Non-interest-bearing instruments (Trade credit)
- Working capital management (Inventory, Accounts receivable, Payables/Accruals)
- Criteria for optimal short-term financing decisions
Excerpt from the Book
3.2.1 Pledging of Receivables
Pledging of receivables means that the company uses receivables as a security for getting money from a bank or a finance company (Maness and Zietlow 2005, p. 578). It is like a credit but secured by the receivables. Maness and Zietlow mention that this method is most effective if the company’s financial needs are basically based on receivables (ibid, p. 578). The advantage of this system is that the company can get short term money very fast without much expenditure. On the other hand it has the disadvantages that the bank usually only gives a credit half the amount of the receivables to be assured against losses of the credit. Other problems are that the receivable are not the same as property of the company and that the company has to pay the borrowed money back whether the customer pays its bills or not. At least the company has to pay interest rates for the money. Maness and Zietlow show that the commercial banks take lower interest rates but often borrow under 50% of the receivables amount. The commercial finance companies give higher amounts of money but take higher interest rates which are sometimes 5% higher than the commercial banks interest rate.
Summary of Chapters
1. Financing: This chapter defines the core concepts of business financing, focusing on the classification of financing alternatives by maturity and the importance of working capital.
2. Alternatives in Short Term Financial Instruments: This section details various interest-bearing and non-interest-bearing financial tools, highlighting their specific costs, benefits, and dependencies.
3. Managing of Working Capital: The focus here is on the efficient management of inventory, accounts receivable, and payables to improve cash flow and reduce reliance on external bank funding.
4. The Short Term Financing Decision: This chapter discusses the necessity of balancing quantitative and qualitative costs when combining various financial instruments to ensure long-term company health.
5. Conclusion: The conclusion summarizes the main findings, emphasizing that managers must employ a strategic combination of financial tools while considering the long-term impacts of short-term decisions.
Keywords
Short-term financing, working capital, overdraft credit, trade credit, liquidity management, accounts receivable, factoring, inventory management, cash-flow cycle, financial decision making, bank loans, interest-bearing, accruals, corporate finance, capital structure.
Frequently Asked Questions
What is the primary focus of this paper?
The paper explores the various alternatives for short-term financing and how companies can optimize their working capital to maintain liquidity, especially in difficult economic times.
What are the central thematic areas?
The core themes are the systematization of financing methods, the distinction between interest-bearing and non-interest-bearing instruments, and the strategic management of working capital components like inventory and receivables.
What is the main objective of the author?
The objective is to provide an overview of common short-term financing instruments and to identify criteria that help managers weigh the pros and cons of these options to reach informed financial decisions.
Which methodology is used?
The work is based on literature research focusing on the principles of short-term financial management and working capital optimization.
What is covered in the main part of the document?
The main part covers the classification of financial instruments, detailed descriptions of specific credit types, strategies for managing working capital (inventory, receivables, and payables), and the decision-making framework for selecting the right financing mix.
Which keywords best characterize this work?
Key terms include short-term financing, working capital, overdraft credit, trade credit, factoring, and liquidity management.
What is meant by the "float" in the context of this work?
The "float" refers to the time delays inherent in the payment system (mailing, processing, and clearing checks) in the United States, which companies must manage to optimize cash availability.
Why is "factoring" considered important for small and medium enterprises?
Factoring allows these companies to improve cash flow by selling accounts receivable to a third party, effectively outsourcing the collection process and obtaining immediate liquidity.
How should a manager approach the "Short Term Financing Decision"?
Managers must not only consider direct quantitative costs like interest and fees but also evaluate qualitative factors, such as the loss of confidence or the long-term impact of their financing choices on the overall capital structure.
- Quote paper
- Diplom-Pädagoge Michael Kemmer (Author), 2009, Alternatives in Short Term Financial Instruments and Criteria for Short Term Financing Decisions, Munich, GRIN Verlag, https://www.grin.com/document/133517
