Chapter 9 - Short-term debt. After completing this unit, you should be able to: Overview of the characteristics of various short-term (S-T) debt instruments: different types, sources (lenders), sources (lenders), advantages and disadvantages; understand how short-term debt instruments are priced. | Chapter 9 Short-term Debt Learning Objectives Overview of the characteristics of various short-term (S-T) debt instruments Different types Sources (lenders) Issuing entities (borrowers) Advantages and disadvantages Understand how short-term debt instruments are priced Chapter Organisation Introduction Trade Credit Intercompany Loans Bank Overdrafts Commercial Bills Calculations Promissory Notes Chapter Organisation (cont.) Negotiable Certificates of Deposit Investment Bank Cash Advance Facility Inventory Loans, Accounts Receivable Finance, and Factoring Summary Introduction Short-term debt is a financing arrangement for a period of less than one year with various characteristics to suit borrowers particular needs Timing of repayment, risk, interest rate structures (variable or fixed) and the source of funds Matching principle Short-term assets should be funded with short-term liabilities Chapter Organisation Introduction Trade Credit Intercompany Loans Bank Overdrafts Commercial Bills Calculations Promissory Notes Trade Credit A supplier provides goods or services to a purchaser with an arrangement for payment at a later date Often includes a discount for early payment (. 2/10, n/30 . 2% discount if paid within 10 days, otherwise the full amount is due within 30 days) Trade Credit (cont.) The opportunity cost of the purchaser foregoing the discount on an invoice (1/7, n/30) is Chapter Organisation Introduction Trade Credit Intercompany Loans Bank Overdrafts Commercial Bills Calculations Promissory Notes Intercompany Loans Direct borrowing and lending between large, credit-worthy companies Typically, lenders are insurance and finance companies, and major retailers with short-term surplus funds Brokers and merchant banks are used to locate and place funds Intercompany Loans (cont.) Loans are normally unsecured; thus, the credit risk of the . | Chapter 9 Short-term Debt Learning Objectives Overview of the characteristics of various short-term (S-T) debt instruments Different types Sources (lenders) Issuing entities (borrowers) Advantages and disadvantages Understand how short-term debt instruments are priced Chapter Organisation Introduction Trade Credit Intercompany Loans Bank Overdrafts Commercial Bills Calculations Promissory Notes Chapter Organisation (cont.) Negotiable Certificates of Deposit Investment Bank Cash Advance Facility Inventory Loans, Accounts Receivable Finance, and Factoring Summary Introduction Short-term debt is a financing arrangement for a period of less than one year with various characteristics to suit borrowers particular needs Timing of repayment, risk, interest rate structures (variable or fixed) and the source of funds Matching principle Short-term assets should be funded with short-term liabilities Chapter Organisation Introduction Trade
