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CFO Fundamentals: Your Quick Guide to Internal Controls, Financial Reporting, IFRS, Web 2.0, Cloud Computing, and More by ALLISON I. SHIM, JOEL G. SIEGEL, JAE K. SHIM

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CHAPTER TWENTY-FOUR

Short-Term and Intermediate-Term Financing

THIS CHAPTER PROVIDES information about short-term and intermediate-term financing sources. Short-term financing is typically used to meet seasonal and temporary fluctuations in funds position. For example, short-term financing can provide working capital, finance current assets (such as receivables and inventory), or furnish interim financing for a long-term project or capital asset until long-term financing can be issued. Long-term financing may not be currently suitable because of long-term credit risk or unusually high cost. Intermediate-term financing is primarily obtained from banks and lessors.

SHORT-TERM FINANCING

Before deciding on how much short-term financing is needed, the CFO should check the company’s cash flow on a monthly or even weekly basis, taking into account economic conditions, timing of receipts and payments, and seasonality.

How does short-term financing stack up compared to long-term financing?

Short-term financing has several beneficial aspects, including being easier to arrange, being less costly, and having greater flexibility. The drawbacks of short-term financing are that interest rates fluctuate more often, refinancing is usually needed, and the risk of inability to pay along with its associated consequences (e.g., credit rating).

What sources of short-term financing may be tapped?

The CFO may decide to use trade credit, bank loans, bankers’ acceptances, finance company loans, commercial ...

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