FREE online courses on How to Manage Cash Flow - Chapter 3 - Short-Term Financing

 

Part of managing cash flows is to understand how to finance operating cash flows. We previously discussed how to predict cash deficits with forecasting. We now have to understand how to finance our cash flow deficits. Whenever we use short-term financing to cover cash deficits, we must consider costs, risks, restrictions imposed upon the organization, financing flexibility, our current financial situation, and other factors. Some of the questions we need to ask include:

 

·         How long will we need financing?

·         How much cash do we need?

·         How will we use the borrowed funds?

·         When and how will we repay the borrowed funds?

 

The first and most practical source of financing is spontaneous financing or trade credit. By lengthening the disbursement cycle, we obtain additional cash. Once we have exhausted spontaneous sources of financing, we than use conventional sources of financing, such as bank loans, lines of credit, and asset based borrowing.