Short Term Financing
Meaning of Short-Term Financing
Short-term financing consists of all those liabilities that are originally scheduled for repayment within one year. Short-term financing is used to finance the working capital of the firm. The firm uses this short-term financing to enhance its operating efficiency of the firm. The funds from short-term financing are used to cover day-to-day expenses such as the purchase of raw materials, salary, wages, etc.
The requirement of short-term financing depends upon the nature, goal, and operation of the firm and the selection of sources of funds depends on respective risk, maturity periods, cost, and provisions for the respective financing sources. Here, Short term financing is all about selecting the sources of funds that have the lowest cost and risk and fits the firm’s policy as well. Different short-term financing sources are evaluated based on the respective cost and requirements of the firm.