CHAPTER 18

Working Capital Finance

LEARNING OBJECTIVES

  • Explain the benefits and costs of trade credit
  • Focus on the norms used by banks in financing a firm’s working capital need
  • Emphasize the importance of commercial paper as a method of working capital finance in India
INTRODUCTION

External funds available for a period of one year or less are called short-term finance. In India, short-term funds are used to finance working capital. Two most significant short-term sources of finance for working capital are: trade credit and bank borrowing. The use of trade credit has been increasing over the years in India. Trade credit as a ratio of current assets is about 40 per cent. Bank borrowing is the next important source of working capital finance. ...

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