Ch17 Cash Management Flashcards
1
Q
Bank Overdraft
A
- Agreed negative balance on a companys account
- Repayable on demand
- Interest rates are higher than loans but are only paid on the amount of the facility actually used
2
Q
Short-Term Loan
A
- Lower risk than overdraft
- Normally fixed IR for fixed period of time
- Interest paid on the whole amount
3
Q
Debt Factoring
A
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4
Q
Invoice Discounting
A
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5
Q
Selling Inventory
A
- Potentially at a discounted price
6
Q
Trade Payables
A
- Trade terms may allow for payment a few months after receipt
7
Q
Bills of Exchange
A
- Written acknowledgement of a debt (IOU with payment date printed on) by an overseas country
- Can be sold onto a 3rd party for a discount of used to settle a debt of our own (trade payable)
8
Q
Export Factoring
A
- Like debt factoring but for receivables where customers are located overseas
9
Q
Letter of Credit/ Documentary Credit
A
- A document issued by a bank on behalf of a customer
- It authorises the seller to draw funds owed from the bank
10
Q
Forfaiting
A
- The exported sells a bill of exchange at a discount to a 3rd party (the forfaiter)
- The forfeiter collects payment from an overseas customer via a bank
- The exporter receives the cash immediately and passes on the risk of non-payment to the forfaiter
11
Q
Certificates of Deposit
A
- Issued by bank to certify a sum of money has been deposited
- Usually provide fixed rate of interest over a medium term
- Can be traded before maturity - very liquid
12
Q
Treasury Bills
A
- Short-term government issued securities at a discount
- Earn no interest
- Can be resold through securities market or redeemed at the end of their lives at a higher (face) value
13
Q
Securities/Shares
A
- May pay a dividend based on performance of the company
- Shares may see capital (share price) growth
14
Q
Commercial Papers
A
- Certificates issues by companies or banks that promise to pay a fixed amount at a specified future date
- Unsecured so higher risk but can have higher returns
