2.3 Short-term resources

The company also has short-term loans that allow it to finance part of its operating cycle.

 The sources of short-term financing used by companies are as follows: 

• Short-term loans. The company asks for money from a financial institution to meet its short-term needs. After a period of time (less than 12 months), the company must return the money and, in addition, the agreed interest.

• Short-term bank credits. Within this section we can study two modalities: the discovered in account and the credit account.

• The discovered in account (or the popular red numbers). It is an unusual source of funding that consists of using an amount greater than the available balance of a current account.

For example, a company has a bank account with a balance of €200 and issues a heel worth €300. The bank can pay all of the money and leave €100 in red numbers; The company must pay an interest for this amount. The advantage of this financial modality is that the provision of money is obtained immediately, without having to present guarantees even though the interests are higher than in other methods.

• The credit account. When the company wants to have financial means to provide possible needs but does not know exactly what amount it will require, it can request a credit account; This modality is that the company signs a contract with a financial institution and it puts at your disposal a checking account with a limit of money.

The company can have the money from this account. And then you will pay interest for the amount you have prepared and a commission for the amount you have not arranged.

• Commercial credit. It is the automatic financing that the company manages when it leaves to duty the purchases that it makes to the suppliers. The company can work with the different materials and supplies acquired, which implies a financing for the company during the time that late in paying the bills. If the provider does not make a cash discount, this financing will be free.

• The effect discount. Prior to maturity, the debts of customers documented in letters may be assigned to a financial institution that will anticipate their amount in accounts after certain amounts are deducted from commissions and interests. The interest that the bank charges for anticipating that amount before maturity is called a discount, and is what gives the name to the whole operation. However, if the letter proves to be unpaid, the bank will pay the aforementioned amount, in addition to the reimbursement costs in the company's account, since it responds at all times to the Bank of the solvency of its clients.

• Factoring. It is another form of business financing which consists in the sale of all the rights of credit on customers (invoices, letters) to a company called factor, which provides the company with an immediate liquidity, and avoids the problem of unpaid bills and arrears, since, unlike the modality of discount, the company is not responsible for the payment of their customers. The disadvantage of this method is the high cost of interest and commission that implies.

• Confirming. It is a financial service offered by some credit institutions to the company to manage their payments to national suppliers, and that includes, for the creditor the possibility of charging invoices prior to its expiration date. The way it works is that the company gives your invoices (to pay) a credit institution. The Bank will be responsible for paying the day of maturity by taking the money from the account of the enterprise, by which you will be charged a fee. In addition, the bank will send you a statement to the supplier, informing you of the date on which you will be charged and offering the possibility of charging before its expiration date (with the consequent copper of interest). It can be considered a form of financing, although here the initiative comes from the client.

• Spontaneous Financing Funds. For example, the amounts that the company due to the Public Treasury or the Social Security; or the wages of the workers, which usually come at the end of each month, since, if the workers billed on a daily basis, the company should ask for a bank loan to maintain the same level of investment. Spontaneous financing funds do not require prior negotiation, as well as the credit with suppliers or the overdraft.