Short term external sources Flashcards
What is short term external sources?
Finances from outside the business and have to be repaid within one year.
What is bank overdraft?
Where the business is allowed to have a negative bank account when it does not have enough money to pay its costs.
What are advantages of back overdraft?
It is flexible and unlike loans interest is only paid on the amount borrowed.
What are disadvantages of bank overdraft?
Interest charged in an additional fixed cost and the bank can end the agreement at any time.
What is trade credit?
It is not immediately paying suppliers for stock.
What are advantages of trade credit?
No interest is paid and helps cash flow if no overdraft is available.
What are disadvantages of trade credit?
You may miss out on discounts and may not be available to new businesses.
What is leasing?
It means that you rent the asset and never own it.
What are advantages of leasing?
It is cheaper in the short run then buying it and asset can be regularly updated.
What are disadvantages of leasing?
It is more expensive in the long run than buying an asset.
