Monday, 28 January 2019

Short Term Funding - Financial System

Short Term Funding

A short-term investment fund (STIF) is a type of investment fund which invests in money market investments of high quality and low risk. They are commonly used by investors to temporarily store funds while arranging for their transfer to another investment vehicle that will provide higher returns.

A. Type Of Short Term Funding

Funding Spontaneously (spontaneous financing) is a type of funding that are changed automatically changing level of the company's activity (for example, views from the sale of the company). Example: trade and debt and accrued debt.

Funding is not Spontaneous (non-spontaneous financing) is a type of funding that is not changed automatically changing level of activity of the company. Example: the debt obtained from banks.

B. Funding Spontaneously (Spontaneous Financing)

This type of funding has changed the character of the company activities if the source funding too then join the change automatically. 

Some form of spontaneous funding sources include: trade debt accrual accounts (such as payment of wages/salary or payment of taxes). Trade debts arise because companies buy supplies from suppliers with credit, tax debts are happening because the tax paid for each specific date in one year.

Average debt = value trade debt/Debt Turnaround
Rotation of the debt in a year = time period/length of time Credit


Loss-averse companies buy goods worth $ 10000K-credit basis with a period of 3 months then the debt turnaround a year 4. Thus the average debt-averse Company trade Loss of $75 million,-
If the company raised the credit purchase of 10% (USD 300 million), then the average debt trade will go up by 10% ($ 82.5 million). So if the company lowers its credit purchases of 5% then average debt trade will be down 5%.

It is not wrong if the staff of the company's financial managers Were Damages like it makes budget debt with percentage figures using the purchase credits.

C. Funding not spontaneous (Non spontaneous Financing)

Type of funding has a character that to gain, augment or reduce the funds, the company takes time to negotiation or the negotiations formally. Some form of funding sources is not spontaneous, among others:

Commercial Paper. Is the short term debt (period 30-90 days), the company issued unsecured Big and sold directly to investors. Usually only large companies could issue a commercial paper.
Credit Loans. Coming from a financial institution and a non bank financial institutions. Loans from banks there are 2 types: (a) a credit transaction, i.e. credit intended for certain specific purposes. (b) Credit Line (Line of Credit), with these loans, the borrower could borrow borrow up to a certain maximum amount, which is the ceiling (the upper limit of the loan).

Factoring or the factoring of trade accounts receivable means selling. In terms of the companies that had accounts receivable factoring, the company does not have a benefit because the need to wait until the accounts receivable is due to earn cash. Accounts receivable also benefit because factoring is an alternative investment.

Guarantee Accounts Receivable. Another alternative of selling receivables is to use accounts receivable as collateral to obtain loans (pledging receivables). With this alternative, the ownership of the receivable is still there in the hands of the company. If the loan is not paid off, receivables which the guarantee could be used to pay off the loan (guarantee can be done for all accounts receivable).
Guarantee Merchandise (Inventory). The company could Guarantee merchandise to obtain the loan. The procedures to be used will be the same with the securing of receivables. Collateral giver will evaluate the value of inventory, then it will give a certain percentage of loans in the value of p

D. evaluation of the Short-term funding sources

To determine the source of the funding of short-term financial manager can evaluate using the framework:
  • Overall funding strategy
  • The cost of the
  • The availability of the
  • Flexibility

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