Discuss any two Sources of Short-term Finance, other than Bank Credit and Trade Credit, That are used by firms to meet their Working Capital needs

Certainly, firms often need short-term finance to meet their working capital requirements.

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Besides bank credit and trade credit, here are two other sources of short-term finance:

**Commercial Paper (CP):** Commercial paper is an unsecured, short-term debt instrument issued by large corporations to raise funds for a specific period, usually ranging from 7 days to 1 year. It is typically used by well-established and creditworthy companies. CP offers several advantages, including lower interest costs compared to bank loans and greater flexibility. However, it is typically accessible to companies with a strong credit rating. Investors purchase commercial paper at a discount to its face value and earn a return when it matures.

**Factoring:** Factoring is a financial arrangement where a company sells its accounts receivable (outstanding invoices) to a financial institution or factor at a discount. The factor advances a significant portion of the invoice amount to the company immediately and takes responsibility for collecting the full invoice amount from the customers. Factoring helps companies improve their cash flow and access immediate funds, which can be used to meet working capital needs. It is particularly useful for businesses that have a substantial amount tied up in accounts receivable and need cash quickly. Factoring is not a loan and is based on the creditworthiness of the company’s customers.

Both commercial paper and factoring provide short-term financing solutions that can help firms address their working capital requirements efficiently and manage their cash flows effectively.

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