Period Basis

On the basis of time period for which the money is required, sources of funds fall into three groups: long-term, medium-term and short-term.

• Long-term sources: Meet financial needs for a period exceeding 5 years. Examples include shares and debentures, long-term borrowings, and loans from financial institutions. Such financing is generally used to acquire fixed assets like equipment and plant.

• Medium-term sources: Used where funds are needed for more than one year but less than five years. Examples include borrowings from commercial banks, public deposits, lease financing, and loans from financial institutions.

• Short-term sources: Provide funds for a period not exceeding one year. Examples include trade credit, loans from commercial banks, and commercial paper.

What short-term finance is typically used for: It is most common for financing current assets such as accounts receivable and inventories. In particular: …