All the companies need money to manage their day to day working operations. In order to meet these daily or working capital requirements, a company needs to raise finance every now and then. Long term finance might be a rare instance for the company.

However, short term finance is more of a necessity for the company. Short term funds are raised for a period of not more than 12 months. Short term finance is generally considered to be less risky than lenders due to its shorter time frame. There are various options available to the company for raising finance for short term.Following are the options available for the companies to meet their short term financing needs:

Bank credit:
Bank credit is the most common and largely availed short term financing route for the companies. There are various forms of bank credit such as loans, cash credit, overdraft and discounted bills. In case of bank loans, bank lends the loan to the company at a pre determined interest rate. Loan will be repaid by the company within a year. However, in case of bank loans, banks credit the loan amount to a separate account and the company needs to pay the interest on the entire amount rather than the withdrawn amount. These loans are given against assets. In case of cash credit, a specific limit is fixed for the companies and the company can withdraw the money only up to that specified limit.

Just like bank loans, even cash credit is given in exchange of collateral security. However, in contrast to bank loan, interest rate in case of cash credit will be charged will be charged only on the amount withdrawn. Companies can also avail of the overdraft facility given by banks, whereby the companies can withdraw the amount above their account balance, but only up to a specific predetermined limit.

Banks also lend the finance to the companies through bill discounting route. In case of bill discounting, all the bills, promissory notes and hundies are presented to the bank. Banks discount these bills and the credit the amount to the company’s account. The discount rate used for discounting the bills or notes is the interest rate charged by the bank for lending to the company.

In addition to the above, companies can also raise the money through fixed deposit route.

Trade credit:
Trade credit is given to the company to pay for the goods that they have received.  Trade credit is given by the supplier of the company for the finished goods, raw materials, components etc. In simple terms, in case of trade credit, the company doesn’t pay for the goods received by them and are instead paid only at the expiry of pre specified term.

Advances received from customers:
Many a times, the company might also ask the customers to pay in advance especially for the large or special orders.