Business Finance

  • Created by: Keilah
  • Created on: 03-02-23 13:46

Working Capital

  • When a company reduces their working capital, to release finance for other purposes
  • Internal finance
  • Short term
  • Advantages - immediately releases cash, not reliant on any external factors
  • Disadvantages - may reduce the liquidity of the business so less able to pay their short term debts
  • This finance is provided by the business
  • Suitable for larger businesses that are profitable like incorporated businesses
  • One factor that affect the choice of the source of finance is the amount of working capital the business has at the moment, whether it can be reduced or not
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Debt Factoring

Debt factoring is when a factoring company comes in and buys your outstanding invoices and advances you a percentage of the total amount, the factoring business then makes profit from the customer

  • Internal, short term source of finance


  • Improves cash flow - it means you don't have to wait for the customer to pay
  • Fast access to capital - this money provided by the factoring company means you get your money quickly
  • Saves time and resources - because you don't have to wait for collecting the customer payment, then this time that has been saved can be reinvested into the business


  • Can Be expensive - as you are not receiving the same amount of money from the factoring business than what you would if it was from the customer
  • Loss of control over payment collection - business might lose their connection with the costumer

Debt factoring is provided by a factoring business

Debt factoring is suitable for all types of businesses 

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  • When a company sells bonds to interested investors, pays a fixed rate of interest for the life of the debenture
  • External finance
  • Long term
  • Advantages - doesn’t require collateral security, if the debenture is convertible then it may be turned into shares so the business doesn’t have to pay the money back
  • Disadvantages - must be repaid by a fixed date no matter the financial stability of the business
  • This finance is provided by interested investors
  • Suitable for private and public limited companies
  • Business would use debentures depending on how quickly they need money
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