Purchasing and Financing 2024
Purchasing- and Financial Management For 2nd year CATS learners. Aligned to the outcomes of the German accredited certification: “Industrie Kaufmann/frau”.
Purchasing- and Financial Management
For 2nd year CATS learners.
Aligned to the outcomes of the German accredited certification: “Industrie Kaufmann/frau”.
You also want an ePaper? Increase the reach of your titles
YUMPU automatically turns print PDFs into web optimized ePapers that Google loves.
External sources of financing<br />
a. Owners’ Equity<br />
Owners’ Equity is what the business owes to the business’s owners. When a company or a<br />
CC is started the amount that is contributed to the business by the owners must be<br />
indicated on the founding documentation.<br />
b. Loan Capital.<br />
1. Short-term credit types<br />
a. Trade Credit<br />
This is one of the most common forms of short-term finance. Goods are bought <strong>and</strong><br />
delivery taken, but payment for the goods is delayed between 30 <strong>and</strong> 90 days<br />
depending on the agreement between the parties.<br />
b. Bank Overdraft<br />
Overdraft facilities allow a company to borrow up to a specified amount on its<br />
current account. The advantage is the great flexibility at peak situations of financial<br />
needs. The disadvantages are the high costs usually associated with an overdraft.<br />
2. Long-term debts<br />
a. Debentures<br />
Debentures involve the issue of a certificate to the creditor stating the conditions of<br />
the loan. The certificate is negotiable <strong>and</strong> therefore often traded at the stock<br />
exchange. The payment of the debenture, including the interest, is done to the<br />
actual bearer of the certificate. The interest rate is usually fixed as well as the<br />
lending period.<br />
b. Bonds<br />
Bonds are secured loans secured by assets, mostly fixed property. The lending<br />
period is usually very long. The risk involved is moderate because of the security <strong>and</strong><br />
the priority a bond has over unsecured loans in case of liquidation.<br />
c. Registered Term Loans<br />
This is an unsecured credit, which, in contrast to debentures, is not negotiable. The<br />
lender <strong>and</strong> the lending conditions are registered in the enterprise’s books.<br />
Registered term loans can be obtained from banks, venture capitalist <strong>and</strong>/or<br />
individuals or other institutions.<br />
Aspects to consider when deciding on the different sources of finance to use will include<br />
the repayment period, the interest rate, the impact on management decisions, taxation<br />
etc.<br />
34