What are the short-term sources of finance for companies?
Apart from the Scottish Government-funded grant, other sources of finance that Aquamarine Power Limited could use for large projects are short-term sources of finance, medium – the source of finance or long-term sources of finance.
Short term sources of finance can be bank overdraft. This is a method of borrowing money, to enable the organization to continue trading over a short time when its need for cash exceeds. An overdraft it is an agreement between bank and organisation, that the business can draw from its current account up to a certain amount more than it has in the account. Any cash paid into the account is reducing overdraft. Interest is taken only from the amount overdrawn. Many organizations have set up overdraft to help them when they are in difficult situation. Overdraft usually is simple to arrange. Unfortunately, an overdraft can be expensive if is used for a long time regarding interest charges.
Another example of a short-term source of finance can trade credit terms. The Aquamarine Power Limited can negotiate longer period between receiving goods from suppliers and having to pay for them. Also, Aquamarine Power Limited can negotiate a shorter period between sending goods to the customers and receiving payment from them. That kind of negotiating can provide a firm with more cash to use in the short term. Benefits of trade credit terms can be a negotiating a longer payment terms with suppliers; this can improve their cash flow position. Unfortunately, any discount for prompt payment is lost. If the organisation payment time is longer then they discuss, suppliers could be reluctant to sell the business more goods on credit.