When it comes to short-term financing, companies have several different resources to choose from. The largest provider is the manufacturer or seller of goods. Our text states that 40% of short-term financing is processed in the form of accounts payable or trade credit. A company’s accounts payable is known as a spontaneous source of funds that grow and decline as needed. The growth and declination of funds is valuable to the company in the ability to attain short-term financing.
A resource known as trade credit can be extended for thirty to sixty days. Many companies will stretch the payment period in order to receive additional short-term financing. Trade credit is a wise choice as long as the option is not abused by the company. Stretching the trade credit payments for longer periods of time can have negative results on a company such as dropping of the company’s credit rating. Abuse of this resource could have a domino effect in future years and the company will need to establish other types of credit.