10.16 : Other Sources of Short-term Financing

In managing short-term financing, businesses often rely on tools that provide quick access to liquidity without significant costs or complications.

Commercial paper plays a vital role in short-term financing by providing large corporations with a flexible, quick, and cost-effective means of accessing liquidity. Issuing commercial paper helps companies bridge temporary cash flow gaps, allowing them to meet payroll, cover operational costs, or fund immediate investment opportunities without engaging in lengthy loan approval processes. Its attractiveness lies in the relatively low interest rates compared to bank loans, especially for well-rated firms, which makes it an efficient solution to meet urgent cash needs while keeping financing costs low.

Accounts payable extensions are another critical component of effective short-term financial management. Businesses can internally free up cash flow by delaying supplier payments without incurring additional interest costs. This extra liquidity allows firms to handle operational needs or manage fluctuations in their cash cycle more comfortably. Accounts payable extensions are a cost-effective source of temporary credit that can be crucial during off-peak seasons or periods of slower receivables, thereby improving working capital management and enhancing overall financial stability.