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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”.

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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 />

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