Explain different sources of short-term finance available to the organization.

Sources of Short-Term Finance for Organizations

Short-term finance refers to the funds that a business or organization requires to meet its short-term obligations and operational needs. These funds are typically used for working capital, such as paying suppliers, covering payroll, and managing day-to-day expenses. There are several sources of short-term finance available to organizations, each with its own characteristics and suitability depending on the organization's needs and circumstances.

1. Trade Credit:
Trade credit is a common source of short-term finance where suppliers allow a business to purchase goods or services on credit and pay at a later date. This arrangement provides the business with the flexibility to manage its cash flow and working capital needs.

2. Bank Overdraft:
A bank overdraft is a short-term borrowing facility provided by banks where a business can withdraw more money than it has in its account, up to a predetermined limit. Overdrafts are useful for managing temporary cash flow shortages but can be costly due to interest charges.

3. Short-Term Loans:
Short-term loans are a form of debt financing where a business borrows a fixed amount of money from a lender and agrees to repay it within a specified period, typically one year or less. These loans are suitable for meeting short-term financial needs and can be obtained from banks, financial institutions, or online lenders.

4. Commercial Paper:
Commercial paper is a short-term debt instrument issued by large corporations to raise funds for a short period, usually up to 270 days. It is sold at a discount and repaid at face value, providing an attractive source of short-term finance for organizations with good credit ratings.

5. Factoring:
Factoring is a financial arrangement where a business sells its accounts receivable (invoices) to a third-party (factor) at a discount. This provides the business with immediate cash flow while transferring the credit risk to the factor.

6. Trade Finance:
Trade finance includes various financial products and services that facilitate international trade transactions. These include letters of credit, bank guarantees, and export/import financing, which can help businesses manage their cash flow and mitigate risks associated with international trade.

7. Inventory Financing:
Inventory financing is a type of asset-based lending where a business uses its inventory as collateral to secure a loan. This can help businesses optimize their working capital by converting inventory into cash.

8. Revolving Credit Facility:
A revolving credit facility is a flexible form of borrowing where a lender provides a maximum credit limit that can be used, repaid, and used again. It is similar to a credit card but tailored for businesses to manage their short-term financing needs.

Conclusion:
In conclusion, organizations have various sources of short-term finance available to them, each with its own advantages and considerations. It is essential for organizations to assess their short-term financial needs and choose the most suitable source of finance to meet their requirements while managing costs and risks effectively.