FINANCIAL MANAGEMENT

SHORT TERM FINANCING

GROUP MEMBERS:
RAHIM KARIM
M.RASHID AMEER
UZAIR
M. AHSAN RAZA KHAN
ABDUL BARI SUBMITTED TO:
SIR ASIF NAJI
AGENDA
• INTRODUCTION
• TYPES OF SHORT TERM FINANCE
• BANK BORROWING
• TRADE CREDIT
• FACTORING OF ACCOUNT RECEIVABLE
• REVOLVING CREDIT
• COMMERCIAL PAPER
• BORROWING AGAINST PLEDGE OF
INVENTORY
• PRACTICAL EXAMPLES
INTRODUCTION
• funds are raised for the shorter period of time (for one
or less than year).
• finance is appropriate for both new and existing
businesses.
• banks will grant only shorter term loans, because
these loans are less risky than loans with longer
terms.
• suitable way to raise working capital and cover
accounts payable.
TYPES OF SHORT TERM FINANCE

• There are various types of short term

finance.
o Bank Borrowing
o Commercial Paper
o Trade Credit
o Revolving Credit
o Factoring of Account Receivable
o Borrowing against pledge of Inventories
BANK BORROWING
• Borrowing from banks and other financial institutions for
one year or less period.
• It shows the relationship between interest paid and fund
utilized by the borrower.
• Interest is paid on the borrowed amount and sometimes
other cost like processing fee, Bank charges
• Reserving of Compensation Balance is also required by
Bank.
METHODS OF BANK BORROWING
• DISCOUNT INTEREST METHOD:

• WITHOUT DISCOUNT INTEREST METHOD:

TRADE CREDIT
A seller of goods and services allow time to the buyer before requiring
payments.
FACTORING OF ACCOUNT RECEIVABLE

• The selling of account receivable to the firm

known as factor in order to raise funds.
• Interest is paid on the amount of loan borrowed.
• Fee is charged by the factor (financial institution)
on the value of account receivable.
• Also called “accounts receivable financing.”
REVOLVING CREDIT
• A line of credit where the customer pays a
commitment fee and is then allowed to use the
funds when they are needed.
• Revolving lines of credit can be taken out by
both corporations and individuals.
• The interest can be pay on the portion of loan.
• The commitment fee pay on the unused portion
of loan.
COMMERCIAL PAPER

• Unsecured promissory notes which are

issued by the large business houses at
discounts.
BORROWING AGAINST PLEDGE OF INVENTORY

• Pledged inventory refers to inventory offered as collateral on

a commercial loan.
• Terminal warehouse receipt
Issued by an independent PUBLIC WAREHOUSES and it
service as a proof about the existence of inventory.
• Field warehouse receipt
Issued by an independent PRIVATE WAREHOUSE and it
service as a proof about the existence of inventory.

• Discount% x 360
100% - Discount% Net credit – discount x Month x Amount
period period Years
PRACTICAL EXAMPLE 1
PRATICAL EXAMPLE 2
PRACTICAL EXAMPLE 3
PRACTICAL EXAMPLE 4