Short-term external financing is necessary to secure the ongoing performance process of the company. It comes from the following sources of funding:
Bills of exchange are granted by suppliers if the company cross-writes (accepts) bills of exchange as a drawee. This loan usually has a term of three months and can be extended depending on the supplier.
Bank loans are granted on a short-term basis by banks or business friends. A short-term bank loan already exists when the company overdraws the current account (overdraft facility).
Factoring is the sale of trade accounts receivable to a factoring institute (factor). Many companies use this opportunity to get the equivalent of their claims quickly.
The factor (mostly a specialized bank) charges processing fees and interest for the factoring for the period from the payment to the connecting customer (selling company) to the receipt of the claim on his account.
Leasing includes the rental or leasing of material goods by a leasing company (lessor). The lessee can use fixed assets without having to buy them. He only pays a monthly leasing rate to the leasing company. This leasing rate includes the depreciation and interest on the leased property as well as the processing fees and the lessor's profit.
Outside financing costs
The costs of external financing essentially consist of the processing fee and the interest. There are significant differences depending on the term and the collateral.