This document discusses various short-term and indirect sources of funds for financial management. Some key short-term sources include trade credit, accrued expenses, commercial paper, inter-corporate deposits, and bank credit. Indirect sources include deferred credit, bill discounting, venture capital, hire purchase/installment schemes, factoring, forfeiting, securitization, lease financing, seed capital assistance, and operating/service leases. Financial leases transfer ownership of the asset to the lessee, while operating leases are shorter term without ownership transfer.

1. FINANCIAL MANAGEMENT

2. SOURCES OF
SHORT TERM
FUND

3. Trade credit
• Trade credit is the largest use of capital for a
majority of business to business (B2B) sellers
in the United States and is a critical source of
capital for a majority of all businesses. For
example, Wal-Mart, the largest retailer in the
world, has used trade credit as a larger source
of capital than bank borrowings;

4. ACCRUED EXPENSES
• Accrued expense is expense which has been
incurred but not yet paid
• The accrued expenses are paid at the end of a
period which increases the liquidity position
of the company

5. COMMERCIAL PAPER
Commercial paper is an unsecured promissory
note issued by a firm to raise funds for a short
period , generally varying from days to a few
month

6. INTER-CORPORATE DEPOSITS
Inter-corporate deposits are deposits made by
one company with another company, and
usually carry a term of six months. The three
types of inter-corporate deposits are: three
month deposits, six month deposits, and call
deposits.
The annual rate of interest given for three
month deposits is 12%.

7. SHORT TERM UNSECURED
DEBENTURES
• Companies can raise short term fund by
issuing debentures for periods ranging from
one months to 17 months . The rate of
interest on these debentures are relatively
higher than the rate on secured long term
debentures

8. BANK CREDIT
Commercial banks provide credit
facilities to meet the working capital
requirements of business firm, such
loans are allowed for short periods,
the maximum of which would be one
year

9. INDIRECT
SOURCE OF
FUND

10. Deferred Credit
Suppliers of costly machines , plants and
equipments will provide credit facilities
by which payment for the same can be
deferred and in some cases credit period
may extend to many years , this will
enable the firm to use assets without
huge immediate payment

11. BILL DISCOUNTING
Payment is possible in the form of accepted
bills. The suppliers can discount the bill with
their bank and realize the bill proceeds . This
will help to stretch the payment period even
up to 6 months

12. VENTURE CAPITAL
Venture capital (VC) is financial capital
provided to early-stage, high-potential, high
risk, growth startup companies. The venture
capital fund makes money by owning equity in
the companies it invests in, which usually have
a novel technology or business model in high
technology industries, such as biotechnology,
IT and software.

13. HIRE PURCHASE / INSTALMENT
SCHEME
A hire purchase is termed an
installment plan although these
may differ slightly as in a hire
purchase agreement the
ownership of the good remains
with the seller until the last
payment is made

14. FACTORING
It is an agreement btwn the seller of
goods and a financial firm, in which
financial firm purchases the
receivable of the seller and collects
the amount from debtors

15. FORFAITING
• In trade finance, forfeiting is a financial
transaction involving the purchase of
receivables from exporters by a forfeiter. The
forfeiter takes on all the risks associated with
the receivables but earns a margin. The
forfeiter may also be immunized from certain
risks if the transaction involves payment by
negotiable instrument. The forfeiting is a
transaction involving the sale of one of the
firm's transactions.

16. SECURITIZATION
Securitization refers to the
process of converting long
term assets like loans and
receivables in to marketable
securities

17. LEASE FINANCING
• A finance lease or capital lease is a type of
lease. It is a commercial arrangement where:
• the lessee (customer or borrower) will select
an asset (equipment, vehicle, software);
• the lesser (finance company) will purchase
that asset;
• the lessee will have use of that asset during
the lease;

18. • the lessee will pay a series of rentals or
installments for the use of that asset;
• the lesser will recover a large part or all of the
cost of the asset plus earn interest from the
rentals paid by the lessee;
• the lessee has the option to acquire
ownership of the asset

19. SEED CAPITAL ASSISTANCE
• The initial capital used to start a
business. Seed capital often comes
from the company founders'
personal assets or from friends and
family. The amount of money is
usually relatively small because the
business is still in the idea or
conceptual stage

20. Such a venture is generally at a prerevenue stage and seed capital is
needed for research & development,
to cover initial operating expenses
until a product or service can start
generating revenue, and to attract
the attention of venture capitalists.

21. Operating / service lease
• An operating lease is a lease whose term is
short compared to the useful life of the asset
or piece of equipment (an airliner, a ship, etc.)
being leased. An operating lease is commonly
used to acquire equipment on a relatively
short-term basis. Thus, for example, an
aircraft which has an economic life of 25 years
may be leased to an airline for 5 years on an
operating lease

22. • Operating lease is short term lease and the
lease period in such a contract would be less
than the useful life of asset
• The lease is usually cancellable by the lessee
• Lease agreement normally contains provision
for renewal of agreement after the expiry of
lease period
• The lesser is generally responsible for

23. Financial lease
• A finance lease or capital lease is a type
of lease. It is a commercial arrangement
where:
• the lessee (customer or borrower) will
select an asset (equipment, vehicle,
software);
• the lessor (finance company) will
purchase that asset;
• the lessee will have use of that asset
during the lease;

24. • the lessee will pay a series of rentals or
installments for the use of that asset;
• the lessor will recover a large part or all
of the cost of the asset plus earn interest
from the rentals paid by the lessee;
• the lessee has the option to acquire
ownership of the asset (e.g. paying the
last rental, or bargain option purchase
price);

25. • it's not cancellable
• the leassor may or may not bear the cost of
insurance, repair, maintenance etc. Usually
the leasee has to bear all cost.
• the leassor transfer ownership of the asset to
the lessee by the end of the lease term
• the lessee has an option to purchase the asset
at a price which is expected to be sufficiently
lower than the value at the end of the lease
period