Size of organisation (value of assets) Age of organisation (new or established business) What the finance is required for How long the finance is required for Finance may be generated from inside the organisation (internal sources of finance) or from outside the organisation (external sources of finance). Internal Sources of Finance SOURCE DESCRIPTION ADVANTAGES DISADVANTAGES Retained Profits kept back No interest to pay Growth may be slow profits from previous years back. if retained profits are are used to generate the main source of more profit in the finance. future. Shareholders may be unhappy as they may receive a smaller dividend. Sale of Selling of assets Saves paying costs on Can take time to sell assets (items it owns) to assets which you are them raise finance not using External Sources of Finance Short Term Sources of Finance SOURCE DESCRIPTION ADVANTAGES DISADVANTAGES Bank Withdrawing more Easy and quick to Expensive to use over overdraft money out of the arrange. a long period of time. bank than is available Good for short Additional charges in the account. periods of time to may be incurred or cover cash flow the facility withdrawn shortages. if overdraft is exceeded. Relatively inexpensive in the term. Trade credit Purchasing items organisation Prompt payment from a supplier where time to sell their discount is lost. the goods are product before the Failure to pay within received immediately invoice is due to be the credit period may and paid for at a later paid. result in future credit date. Can help being refused. organisation’s cash flow. Debt Selling invoices Organisation is Organisation does not factoring (money due from guaranteed to receive receive full amount of
Size of organisation (value of assets) Age of organisation (new or established business) What the finance is required for How long the finance is required for Finance may be generated from inside the organisation (internal sources of finance) or from outside the organisation (external sources of finance). Internal Sources of Finance SOURCE DESCRIPTION ADVANTAGES DISADVANTAGES Retained profits Profits kept back from previous years are used to generate more profit in the future. No interest to pay back. Growth may be slow if retained profits are the main source of finance. Shareholders may be unhappy as they may receive a smaller dividend. Sale of assets Selling of assets (items it owns) to raise finance Saves paying costs on assets which you are not using Can take time to sell them External Sources of Finance Short Term Sources of Finance SOURCE DESCRIPTION ADVANTAGES DISADVANTAGES Bank overdraft Withdrawing more money out of the bank than is available in the account. Easy and quick to arrange. Good for short periods of time to cover cash flow shortages. Relatively inexpensive in the term. Expensive to use over a long period of time. Additional charges may be incurred or the facility withdrawn if overdraft is exceeded. Trade credit Purchasing items from a supplier where the goods are received immediately and paid for at a later date. organisation time to sell their product before the invoice is due to be paid. Can help organisation’s cash flow. Prompt payment discount is lost. Failure to pay within the credit period may result in future credit being refused. Debt factoring Selling invoices (money due from Organisation is guaranteed to receive Organisation does not receive full amount of