The company has a number d of options for the investment purpose however a company uses to finance short term financing. It is not fair to analyze the company company's ability to pay bills through a short-term analysis. This is because the company can arrange a number of things on short term basis to pay of its bills. But it has limited options when it comes to long term loan and financing. Short term has its own benefits while some companies are bound for long term analysis.
Short-term financing instrument are of extreme importance to the company in managing organization business operations (Bringham & Daves, 2012). Organizations operating in the technological industry of USA can chose several short terms financing instrument to fulfil its short-term needs. For instance, some companies require short term funds to sustain their position in poor condition, whereas, other companies uses short term financing to purchase inventory and material that will provide them long term advantage, and, some company uses short term financing instrument to show strong cash position of their company.
However, before selecting the short-term instruments it is important for all the organization to analyze the pros and cons of these instrument, and strategies of their companies, because not every short term financing instrument might prove to be effective for the every organizations (CFA, 2006). There are wide ranges of short term financing instruments (Bank overdraft, trade credit, leasing, bank loans, and credit cards) that are used by companies operating in technological industry, however, two of the most commonly used instruments are briefly discussed.
The main advantage of commodity finance is that it is easily accessible, as opposed to other forms of short-term financing; there is no need to negotiate with the lender on the conditions of the loan. This means that the firm can avoid wastage of time for the implementation of the funding requirements, i.e. between the time the need arises in the funds and the time when they are available. Commodity finance is very flexible and can avoid the strict payment schedules. With a certain image of the entrepreneur can also avoid restrictions on their operations and precautions on the part of the lender. Suppliers are often more lenient in the case of financial problems in the implementation of projects than bankers or other lenders. Finally, for a number of projects there are no alternative sources of short-term funding, except commodity.
It should be borne in mind that the main source of funds - it's sale and for projects related directly to sales, commodity finance not only worsened the situation of the company to the contrary, it would make it more sustainable. For example, a supermarket chain, commodity finance is redundant, since the implementation period for the proper organization of trade is much less than the net period.
But despite the benefits of trade credit, many companies use other forms of short-term funding to be able to take advantage of discounts when purchasing ...