for public deposits Corporation sector banks Private office savings bank Post Non-deposit taking institutions o sector public investment commissioners Public – sector life assurers, pension and provident fund, short term Private – insurers,trusts institutions industrial development corporation – 8.3. term financing credit Trade Accruals overdrafts Bank Factoring 8.3.1. Trade credit in term of supplied credit Mainly does not take payment when prod are purchased Supplier ensure payment supplier after offer rebate for early payment To the following advantages: Has It is readily available for business that pay regularly o It is informal o More flexible than other forms of short term fianancing o 8.3.2. Accruals common expenses accrued is wages and taxes Most tax is also from of financing Accrued have no associated cost Accruals 8.3.3. Bank overdrafts with bank that allows business to make payments from Cheque account in Arrangement excess of balance of account is to bridge gap between cash income and cash expenses Purpose reviewed annually Usually charged daily Interest is repayable on demand bank can cancel at any time It – form of short term financing Flexible 8.3.4. Debtor finance of factoring and invoice discounting Consist of debtors to a debt financing company invoicing discounting Sale – company then converts credit sales into cash sales injecting funds that were tied up This as working capital = financier also undertakes to collect debt Factoring financier to whom the debt is sold = factor The types: 2 Non-resource factoring o Resource factoring o resource factoring factor buys debtors outright and bears the risk of bad debts Non – factoring seller guarantees that debts are recoverable Resource – has the following advantages: Factoring
Corporation for public deposits Private sector banks Post office savings bank o Non-deposit taking institutions Public sector – public investment commissioners Private sector – life assurers, pension and provident fund, short term insurers,trusts institutions – industrial development corporation 8.3. term financing Trade credit Accruals Bank overdrafts Factoring 8.3.1. Trade credit Mainly in term of supplied credit Supplier does not take payment when prod are purchased To ensure payment supplier after offer rebate for early payment Has the following advantages: o It is readily available for business that pay regularly o It is informal o More flexible than other forms of short term fianancing 8.3.2. Accruals Most common expenses accrued is wages and taxes Accrued tax is also from of financing Accruals have no associated cost 8.3.3. Bank overdrafts Arrangement with bank that allows business to make payments from Cheque account in excess of balance of account Purpose is to bridge gap between cash income and cash expenses Usually reviewed annually Interest charged daily It is repayable on demand – bank can cancel at any time Flexible form of short term financing 8.3.4. Debtor finance Consist of factoring and invoice discounting Sale of debtors to a debt financing company – invoicing discounting This company then converts credit sales into cash sales injecting funds that were tied up as working capital Factoring = financier also undertakes to collect debt The financier to whom the debt is sold = factor 2 types: o Non-resource factoring o Resource factoring Non resource factoring – factor buys debtors outright and bears the risk of bad debts Resource factoring – seller guarantees that debts are recoverable Factoring has the following advantages:
MNB1601-NOTES-Chapter_13_study_unit_7_mnb1601.docx