Short-term finance

• What is the purpose of short-term finance for businesses?

  To maintain positive cash flow
• Why might a business need short-term finance?

  To cover costs like equipment and stock
• How can short-term finance help during seasonal downturns?

  It helps get through poor cash flow periods
• What is a common use of short-term finance related to delayed payments?

  To bridge the gap when payments are delayed
• What is an overdraft?

  An agreement to overspend on an account
• Why should overdrafts be used carefully?

  They can become expensive due to high interest
• What are common features of a bank overdraft?

  Variable interest rates and flexibility
• What can banks demand regarding overdrafts?

  Full repayment within 24 hours
• How does trade credit benefit a business?

  It allows payment after selling products
• What is trade credit?

  The ability to buy stock and pay later
• What are common terms of a credit agreement?

  Credit limit, credit period, and payment method
• What is a credit limit?

  The maximum amount of credit available
• What is the typical credit period for trade credit?

  Usually 30, 60, or 90 days
• What is a retrospective discount?

  A discount for purchasing a certain amount
• How can a business make payments under a credit agreement?

  Through bank transfer, cheque, or card
• What is the significance of trade credit in business operations?

  It helps manage cash flow and stock purchases
• Why is maintaining a positive cash flow important for businesses?

  It ensures they can cover operational costs
• How does short-term finance support daily operations?

  It provides funds for immediate expenses
• How does seasonal change affect cash flow for businesses?

  It can lead to periods of poor cash flow
• What is the relationship between trade credit and supplier agreements?

  Trade credit requires agreements with suppliers
• What are the implications of high interest rates on overdrafts?

  They can make overdrafts expensive
• What does it mean for a business to use an overdraft flexibly?

  Using it only when necessary
• Under what conditions can banks demand repayment of overdrafts?

  Within 24 hours of demand
• How does converting raw materials into products benefit a business?

  It allows for sales and cash inflow
• Why is the method of payment important in credit agreements?

  It determines how payments are made
• What does a credit limit indicate for a business?

  The maximum credit available to them
• How often are payments typically required in trade credit agreements?

  Usually monthly
• What is the benefit of a retrospective discount?

  It rewards bulk purchases
• What are the common methods of payment in credit agreements?

  Bank transfer, cheque, or card payment
• How does trade credit help manage cash flow?

  It allows delayed payments after sales