Sources of Finance

1)An unexpected bill for repair of machinery. it must be paid immediately. The business has insufficient funds in it's bank account.

Bank Overdraft:
this is the most important source of finance for a very large number of businesses. Bank overdrafts are flexible. Interest is on paid by the business when its account is overdrawn. It is a short term exernal source of finance.The amount by which a business goes overdrawn depends on its specific needs at the time.

2)5 new delivery vehicles need to be purchased for the company.

Bank Loan:
A loan requires a rigid agreement between the borrower and the bank. the amount borrowed must be repaid over a clearly stated time period, in regular instalments. Most bank loans are short term or long term Banks dislike long term lending because of their need for security and liquidity. sometimes, banks change presistant overdrafts into loans, so that firms are forced to repay regular intervals.

3)A sport team needs new uniforms

sponsership:
sport teams can get sponerships from other companies where their logos and names can put on the uniforms therefore they would be paying them in return.

4) A new machine is required for a printing company
Bank loan
requires a rigidd agreement between the borrower and the bank, and there is a high capital cost.

5)a builder needs to buy materials for building a villa
Trade Credit
it is common for business to buy raw materials components and fuel and pay for them at a later date, usually within 30-90 days. paying for goods and services using trade credit seems to be an intrest free way of raising finance. it profitable during periods of inflation.

6)A new company is looking for a start up capital:
Venture Capital

the sale of hares can raise very large amounts of money. They often use provide funds for small and medium sozed companies that appear to have some potential. they attract money from financial institutions however there is an advantage which is a loss of control.

7) A firm looking to recover bad debts
Debt factoring
when companies sell their products they send invioces stating the amount due. the invoice provides evidence of the sale and the money owed to the company. Debt factoring involves a company providing finance against these unpaid invoices. a common arrangement is factor 80 percent of the value of invoices when they were issued.

8)a salesman is paaying for flights and accommodation for an overseas sales trip.
Credit Card
businesses of all sizes have uses for credit cards. they can be used by executives to meet expenses such as hotel bills, and meals when travelling on company business. they might also be used to purchase materials from suppliers who accept credit cards, they are convenient and flexible and secure and you can aviod interests charges.

Factors that can cause liquidity crisis for a firm and credit control

Factors

overtrading 

young and rapidly growing businesses are particularly prone to OVERTRADING. overtrading occurs when a business is attempting to fund a large volume of production with inadequate working capital. 

Investing too much in fixed assets 

in the intial stages of a business where funds are limited.

Stockpiling 

holding stock of raw material and finished goods is expensive. 

Allowing too much credit

a great deal of business is done on credit

Taking too much credit

a great deal of business is done on credit. 

Overborrowing 

businesses may borrow to finance growth. 

underestimating inflation

bussinesses often fail to take inflation into account. 

Unforeseen expenditure

business are subject to unpredictable external forces. 

Unexpected changes in demand 

Although most businesses try to sustain demand for thir products, there may be times when it falls unexpectably 

Seasonal factors

sometimes trade fluctuates for seasonal reasons. 

Poor financial management

inexperience in managing cash or a poor understanding of the working capital cycle may lead to liquidity problems for a business. 

How can a business use credit control to improve  their working capital position?

Most businesses have some sort of credit control system, so owing can be collected quickly and easily. A 'tight' or 'easy' credit policy may be adopted. Tight credit terms may be used to improve liquidity, reduce the risk of bad debts, exploit a sellers market, or maintain slender profit margins. Easy credits terms may be designed to clear old stocks, enter a new market, or perhaps help a regular customer with financial difficulties.