1. Finance for Working capital Requirement

Net working capital consists for its current assets minus its current liabilities. Current assets, principally cash and short term securities, account receivable, and inventories, are assets that can normally converted into cash within one year. Current Liabilities principally shot-term borrowings, accounts payable, and taxes payable, are obligations that are expected to come due within one year. Thus, working capital management and financing involve all aspect of the administration of current assets, current liabilities and shot-term financing planning.

(Scott, 1999, p.612)

1.1 Short-term Financing

Short-term funds are debt obligations that were scheduled for repayment within 1 yr. Companies, arrange short-term loans to finance seasonal or temporary needs. This is a typical arrangements with lenders that are mainly concerned with the company’s working capital position and its ability to liquidate current assets – collecting on receivables and reducing inventories according to seasonal patterns – to generate cash to meet the company’s current debt service obligations.

(Nonaka, 1999, p.811)

1.2 Sources of Short term financing

There are three main sources of short-term financing:

q Trade Credit (Borrowing form Suppliers)

q Bank Loan (Borrowing from banks)

q Commercial Paper (Selling short-term debt securities in the open market)

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