Please enable JavaScript.
Coggle requires JavaScript to display documents.
Raising finance – small and medium-sized organisations (debt factoring…
Raising finance – small and medium-sized organisations
retained earnings
working capital management
Comprises of resources from day to day running of the business
Cash held at bank
Value of stock (inventory)
Cash due to be received from customers (Trade Receivables)
Cash due to be paid to suppliers (Trade payables)
Intention of using cash flow to provide liquidity by operating with negative working capital
Legal constraint of late bills
reputational damage
Price discounts being forfeited
debt factoring
sells accounts receivables (invoices)
to a third party (factoring house) at a
discount value of the receivable amounts
Using working capital management to finance
House acquires trade debts - arise in return for payment - house has right to these debts - organisation reduces credit exposure - improved cash flow
Organisation receives less but
-gets cash promptly
-- can pay suppliers
-provides working capital
two forms of factoring
recourse
Will come back to organisation if there is non payment
non recourse
fees higher due to risk of non payment transferred to factoring house
bank overdrafts
Financing of seasonal or other temp cash flow shortages
Impacts on cash immediately available
To be approved
review period
covenants on performance
fees if utilised?
notice periods
interest chargeable
maximum size
security provided
bank facilities
bilateral facility
borrower raises funds - right to draw from one bank
Syndicated
N.o of banks have share in facility
Borrower draws fund from each - risk shared
Interest rate LIBOR
London interbank offering rate
Leasing
Bank acquires a needed asset - organisation leases it from bank for defined term
Makes payments - final payment secure ownership
finance leases
legal ownership is bank
Risks with organisation
Operating leases
short term
Rental payments
lessor retains risks
Equity finance
Dividends
Payments to investors in shares - financial performance
Approval of shareholders
Ordinary shares
Ownership and entitlement to share profits after banks.. have been paid
voting rights but no automatic entitlement to dividend earnings
Behind preference shareholders - dividends
Preference shares
Voting rights if major issues occurs
ownership of company
Dividends is fixed - payable before ordinary share
venture capital and private equity
Private equity - non-public issuance of shares
Venture capital suppliers private equity finance to new companies
Hedge funds
Fund management companies