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Sources of finance

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Lara K. Business 12B 12th October 2008 Grade 12 Sources of Finance Homework Task For the following items below, decide which form of external finance is suitable and why? (You may have to decide between more than one, evaluate the best solution) Item: 1. An unexpected bill for repair of machinery. It must be paid immediately. The business has insufficient funds in its bank account. The company could take advantage of trade credit because they would be able to pay for goods and services and it is an interest free way of raising finance. If the company delays the payment of bills than it could result in poor business relations, which could cause suppliers to avoid working with that particular company. Another external source of finance that the company could use is bank overdraft. ...read more.


3. A sports team needs new uniforms. If a company wanted to buy new uniforms for a sports team then they should consider the trade credit source of finance because it is an interest free way of raising finance however, the company need to be careful when paying back the bill because the cost can increase and it can also result in poor business relations with suppliers. 4. A new machine is required for a printing company. If a new machine is required then the company should consider loan capital from industrial loan specialists depending on the size of the business. This would allow the company to buy the new machine in order to print and then pay back the loan after a certain amount of time. If a business is thinking of purchasing a new machine, then it should also consider a bank loan. ...read more.


Bank loan could be another possible source of finance for the company due to the fact that most bank loans are short or medium term but due to the nature of the loan the bank might be more flexible with the deadlines and the amount of interest rate being paid. 7. A firm is looking to recover bad debts. Debt factoring would be the most appropriate source of finance for this firm because it involves specialized company providing finance against unpaid invoices. The firm would hire another firm in order to look into their bad debts and try to recover as much money possible and consider the remaining as bad debt. 8. A salesman is paying for flights and accommodation for an overseas sales trip. The salesman should use a credit card due to the fact that it is flexible, secure in many ways and interest free if the limit is not exceeded. The company can limit the salesman to a certain amount of money that he/she is allowed to use while traveling abroad. ...read more.

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