SOURCES OF FINANCE - SHORT TERM

Question 1

What are some forces of finance

Answer 1

Internal
External
Short term uses (revenue expenditure)
Long term uses (capital expenditure)

Question 2

What is internal

Answer 2

Sources of finance generated within the business, or by their current owners

Question 3

What is external

Answer 3

Sources of finance that are obtained from outside the business

Question 4

What is short term uses (revenue expenditure)

Answer 4

To pay for running costs, like stock, wages, electricity etc

Question 5

What is long term uses (capital expenditure)

Answer 5

To fund the purchase of asset, like machinery and property etc.

Question 6

What is debt factoring

Answer 6

Debt factoring is the process of selling the right to collect sales made on credit to another business

Question 7

What are the short term/ internal uses of debt factoring

Answer 7

Most businesses would only use in an emergency to cover urgent costs

Question 8

What are the advantages of debt factoring

Answer 8

Provides cash in the short term

Reduced risk of bad debts

Fewer costs involved in changing up payments

Question 9

What are the disadvantages of debt factoring

Answer 9

May only receive 80% of sale value

Reputational damage if customers are chased for payment by a factoring company

Question 10

What is an overdraft

Answer 10

An overdraft is an arrangement with a bank to overspend on a current account up to a set limit

Question 11

What are the short term/ internal uses of overdraft

Answer 11

Cover seasonal changes in demand

Cover short term short falls of cash i.e. awaiting payment from a customer

Question 12

What are the advantages of an overdraft

Answer 12

Flexible - allows a business to go below £0 in advance

Helps to deal with seasonal fluctuations in demand

Bales a business to respond to unforeseen events