Trade Credit

Part I. Sources of Short-Term Funds

Lesson 3. SOURCES OF FUNDS

Vocabulary

debt capital equity capital contribution venture share of ownership stock issue plow (back) portion generate operating revenues rental emphasize bonus distribute annual earnings mature maturity sufficient extra funds work force lease payments component parts advantage drawback alternative blend t prior claim contractual obligation residual claim	залучений капітал власний капітал внесок комерційне підприємство право власності на акції випуск акції капіталізувати (прибуток), перетворювати в капітал частка, доля викликати, породжувати, створювати доходи від основної діяльності орендна плата підкреслювати, наголошувати

Reading and Speaking Tasks

I. Make up questions covering the content of the text and let your fellow students answer them.

II. Complete the table given below using the information from the text.

Comparing Debt and Equity Capital

Factor Maturity	Debt Has a specific date when it must be repaid.	Equity
Claim on assets Claim on income Right to a voice in management	Lenders have prior claim on a fixed amount of interest, which must be paid before dividends can be paid to stockholders. Interest payments are a contractual obligation of the borrowing firm.	Stockholders have claims only after claims to lenders have been paid. Stockholders are the owners of the company, and most are given a voice in the operation of the firm.

III. Having read the text, what you can now say about:

• debt capital;

• equity capital.

IV. Work with a partner who read the text to produce a summary of the text. You need only mention the important points.

Text A: Sources of Short-Term and Long-Term Funds

Firms can call on many short-term sources for the funds they need to finance day-to-day operations and to implement short-term plans. These sources include trade credit, secured and unsecured loans, commercial paper, and factoring accounts receivable.

Accounts payable are not merely an expenditure. They are also a source of funds to the company, which has the use of both the product purchased and the price of the product until the time it pays its bill. Trade credit, the granting of the credit by one firm to another, is thus effectively a short-term loan.

The most common forms of trade credit are open-book accounts, promissory notes, and trade drafts and trade acceptances. Open-book credit is essentially a «gentlemen's agreement)). It is form of trade credit in which sellers ship merchandise on faith that payment from the buyer will be forthcoming.

A promissory note is a form of trade credit in which a buyer signs a promise-to-pay agreement before the merchandise is shipped. A trade draft is a form of trade credit in which the seller draws up a statement of payment terms and attaches it to the merchandise. The buyer must sign this agreement to take possession of the merchandise. A trade acceptance is a trade draft that has been signed by the buyer.

Дата добавления: 2015-01-03