Financing the Short Term Obligations of The Business Coursework

Financing the Short Term Obligations of The parentage - Coursework ExampleSources of shortstop term finances available to a business 1. Trade credit this is similarly referred as suppliers credit, ledger credit or open book account. It is needed when commercial purchases are not to be cleared immediately. In this case the order holds an accounts payable for the amount it owes to the suppliers while in identification number running business on not paid for bills. Trade credit varies in length, type of customers and cost prevailing in a particular industry. However, the customer has to forego any discounts that would have been offered on busy payment. The follow jackpot resolve to one month single statement bill or evening the open book this is where they have an extra ten days to clear the bill (Guerard, 2007, 108). 2. Bank loans companies denotation for commercial loans from banks in order to meet or cover temporary gross working peachy needs. The loan can either be sec ured or nonsecured. Secured loans have a lien against a high societys asset e.g. inventory, outstanding receivables et cetera, or a pledge of credit, to back the loan. Unsecured loans are issued depending on creditworthiness of the business. The cost of the loan varies with its size and pass judgment charged on the loan. However, a prime rate is use as a benchmark for these types of loans. Other methods used are revolving line where money is lent on a recurring basis letters of credit where the bank guarantees by writing, the payment of a companys overdraft for a given period of time and for specified amounts (Gitman, 2003, 24). 3. Open market commercial papers these are negotiable notes with maturities from a range of one to nine months which are floated on the market by big corporations. Commercial paper dealers sell the issues to pension funds, smaller commercial banks, corporations, insurance companies to raise funds. The rates on commercial papers are however, below the pri me rate for loans. The advantage to the company victimisation commercial papers for borrowing funds is that the issue is widely distributed in the national market. This frees the company from relying on commercial banks. 4. Finance companies and factors large commercial companies are deemed as the departmental stores of the financial world. These companies have subsidiaries or branches where they practice direct sales financing. They are in close contact with dealers of their merchandise therefore can offer goods to be paid for on installments. Their rates are much higher than commercial banks. work out arrangements are based on an advance of funds to a company by the factor against an concession of trade receivables. An agreement is signed between the two companies to govern their relation. This is usually on a never-ending basis depending on the terms applied by the two companies. Nonrecourse factoring allows the factor to buy the accounts of the company and takes up the loss es thereto. However, in recourse factoring, the factor does not take up the loss on bad accounts. Either case, factoring charges are based on a firms daily balance, general cheer rate, specific factoring agreement and outstanding credit (Guerard, 2007, 115). Question two a) Financing Mark and spencer uses short term borrowings from banks and medium term notes to source for funds. Trade credit has been used for meeting financial obligations. Morrison on the other hand, has applied trade credits, borrowings from banks to source for short term funds. b) Liquidity ratios liquidity ratios for Mark & spencer present-day(prenominal) Ratio = Total