Short-term Sources — Part 1: Commercial Banks and Public Deposits: visual lesson, ISC Class 12 Commerce

Lesson

Short-term Sources of Funds

Part 1: how commercial banks meet short-term needs, and what public deposits offer.

In this lesson you will

Part 1 at a glance

Concept

Short-term funds finance needs that last less than a year: mostly working capital.

Table of three short-term needs for funds with imagined examples
Short-term need (under a year)	Imagined example
Buying raw material for a season	A knitwear exporter buys yarn before shipments
Paying wages and bills before customers pay	A cable maker waits 60 days for dealers
Carrying stock and debtors	A wholesaler stocks rice and pulses for 300 shops

Concept

Table of four forms of short-term bank assistance: overdraft, cash credit, short-term loan and discounting of bills, how each works and on what interest is charged
Facility	How it works	Interest on
Overdraft	Current-account holder draws beyond balance up to a limit	Amount overdrawn, for the days used
Cash credit	Borrowing limit against stock or receivables; draw as needed	Amount actually drawn
Short-term loan	Lump sum credited to the account at once	Whole amount from the start
Discounting of bills	Bank pays bill value before maturity, less a discount	Discount deducted in advance