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I-Care Cutlery has used the following sources of finance: a bank overdraft, trade credit and hire purchase - Leaving Cert Business - Question C - 2019
Question C
I-Care Cutlery has used the following sources of finance: a bank overdraft, trade credit and hire purchase. I-Care Cutlery is planning on seeking a grant and a long ... show full transcript
Worked Solution & Example Answer:I-Care Cutlery has used the following sources of finance: a bank overdraft, trade credit and hire purchase - Leaving Cert Business - Question C - 2019
Step 1
Bank Overdraft
Answer
A bank overdraft is a short-term source of finance that allows a business to withdraw more money from its account than it has available. This facility is particularly useful for managing cash flow and covering unexpected expenses. The business must repay the amount overdrawn, usually within a year, along with interest. This can help in addressing urgent needs, such as paying wages or settling utility bills.
Step 2
Trade Credit
Answer
Trade credit is an arrangement where a supplier allows the business to buy stock now and pay for it later, typically within a specified period. For instance, a supplier might allow a payment period of one month after delivery. This form of credit enables businesses to manage their cash flow effectively and minimize upfront costs, while also ensuring that they can meet immediate stock needs.
Step 3
Hire Purchase
Answer
Hire purchase is a financial arrangement that allows a business to obtain an asset by paying a deposit followed by regular installments. The buyer gains the right to use the asset while making payments, with ownership transferring once the final installment is paid. This method enables businesses to acquire essential equipment without large upfront costs, making it easier to manage finances.