Short-term obligations Essay Example | Topics and Well Written Essays - 1250 words

Short-term obligations - Essay Example It is evident from the study that businesses apply a variety of ways to finance their short term obligations. The obligations are outstanding payments that are to be made but outweigh organization’s current assets. As a result, external sources are the only available options for offsetting the liabilities. One off the approaches to financing ‘short-term’ obligation is the use of trade creditors. Creditors are entities that are owed money by the organization for goods delivered or services offered to the company. They occur when benefits are received but no consideration is transferred. The effect of trade creditors is that they allow for retention of cash and cash equivalence within the organization. The cash that would have been paid to the creditors can then be used as a source of finance to ‘short-term’ obligation. ‘Short term’ obligations can also be financed through ‘short term’ loans. Banks and other financial instituti ons offer financial services that an organization can use for financing its current liabilities. There exists a wide variety of ‘short term’ loans. Unsecured loans as well as loans that are offered upon guarantee are examples of available options from the financial institutions. â€Å"Revolving line of credit† is another possible option for financing the ‘short term’ obligations. The arrangement in which a bank agrees to offer specified amount of money to an enterprise on a renewable term provides availability of funds as may be needed by an organization. This is because once an arrangement is made for the revolving fund; the company is assured of obtaining it in case of need. (Worldacademy, n.d., 1; Pride, Hunges and Kapoor, 2011, 577). Factoring is another suitable approach to financing ‘short term’ obligations. This is defined as the transfer of rights over debtors to a third party for finances. The arrangement involves a form of sale of debtors’ accounts to another entity that will then offer money based on the accounts receivables balances and the risks involved in the accounts. The transaction also offers money for offsetting ‘short term’ obligations. Other possible methods of financing ‘