MANAGING FINANCE RESOURCES AND DECISIONS

Managing Finance Resources and Decisions



Managing Finance Resources and Decisions

Task 1 (AC 1.1, 1.2 and 1.3)

1. A number of invoices that it is unable to obtain payment for that occur on a regular basis

In this situation companies go for Invoice discounting. It is a tool of short-term financing, in which company can convert accounts receivable (credit invoices, bills of exchange) in cash and obtain working capital in an agile.

The benefits that your company gets to use this service are:

Maximize the cash cycle of your business.

Increase levels of liquidity.

Reduce administrative costs associated with collection.

Reinvestment and accelerate business growth.

2. Expansion into Europe requiring £2 million in finance

In this type of situation, the source of finance which is appropriate is Long Term Loan. Long Term loan allows flexibility to undertake future business projects with funding as the support and professional advice. Companies unusually go for long-term loans when they want to expand and increase in prospect of capital asset investment, or start a business in new region or area. The duration of these loans ranges from three to five years. These loans are usually backed with the duration of the asset obtained. Payments are usually monthly or quarterly (www.philipallan.co.uk).

3. One large invoice from a FTSE100 company which it cannot obtain payment for which is a one off transaction

In this situation, the company would go for factoring, as it is one off transaction in which company not usually trade with company. This is a source of finance when company sells it receivables to third party.

Factoring is a form of financing for the current (operational) business operations. It is a service involving the redemption of a specialized financial institution (factor) of the company (factoring) of receivables from the sale of goods or services. With the service factoring, company gets funding immediately after the invoice, regardless of the date of payment.

Factoring is easy to apply and can be implemented within days. It works like this:

Your company invoices the donor

Advances in factoring company you 80% (sometimes more) of the invoice immediately

After 30 to 60 days, your customer pays

The factoring company rebates you the remaining 20%, less the costs of

The factoring fee varies depending on a number of criteria including the quality of your customers and the amount of funding you need. Rates generally range from 3.5% and 1.5% per month based on these criteria. However, some exceptions apply.

There are a number of advantages associated with factoring companies. For starters, factoring is easier to obtain than bank financing. The biggest requirement is that you do business with companies' valid credit. An invoice factoring program can be implemented relatively quickly, usually within days. If you own a business and there are huge bills and need working capital to finance operations, you should consider using the factoring financing (A level of achievement, 2000, pp. 1).

4. The takeover of another company both are listed on the FTSE All Share Index

When company is overtaking another company of the same index then the companies usually ...