Source of Generation Basis

On the basis of source of generation — that is, where the funds come from relative to the organisation — sources are classified as internal or external.

Internal sources

• Funds generated from within the business itself.
• A firm can generate funds internally by, for example: accelerating the collection of receivables, disposing of surplus inventories, and ploughing back (reinvesting) its profits.
• Limitation: internal sources can meet only limited needs of the business.

External sources

• Funds that lie outside the organisation — supplied by suppliers, lenders and investors.
• Used when a large amount of money has to be raised.
• They are generally more costly than internally raised funds. …