KEY TAKEAWAYS - CHAPTER 24 SUMMARY Sources of Finance 1 Short-term finance


Money used to cover day-to-day running costs. Repaid within one year.


Used for: Paying wages, buying stock, paying bills 2 Bank overdraft 3 Trade credit 4 Debt factoring 5 Credit card 6


Medium-term finance


7 8 9 Medium-term loan Hire Purchase Leasing 10


Long-term finance


11 Long-term loan 12 Grant 13 14 Sell shares Retained earnings 15 Sale and leaseback


Spending more than their current account balance, up to an agreed limit. High interest applies.


Receive stock now, pay after 30, 60 or 90 days. Risk losing credit terms if payment is late.


Sell unpaid invoices for cash instead of waiting to receive customer payments due. They would receive less than the full amount owed.


Buy now, pay later. High interest if balance is not cleared.


Money used to pay for assets the business will use for one to five years. Used for: Buying a vehicle, new equipment or machinery


Repaid with interest in instalments over one to five years. Use the asset immediately, own it after the final payment. Rent the asset with regular payments. Never take ownership.


Money used to fund major investment that will benefit a business for more than 5 years. Used for: Expanding the business, opening new premises


Repaid with interest over more than five years. Collateral required. Does not have to be repaid. Conditions apply to how it is spent. Raise money without debt. Owners give away some control. Use existing profit. No interest or repayments needed.


Sell an asset and lease it back. Releases cash but ownership of the asset is lost.


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STRAND 2


CHAPTER 24: Sources of finance and the cash flow budget


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