Vibrant Publishers

Accrued Liabilities
Companies pay their employees on a weekly, bi-weekly, or monthly basis. They also pay their utility bills, income taxes, social security and income tax withheld and sales tax collected after a certain number of days or weeks. These items are shown as accrued liabilities on the company’s balance sheet. These can be viewed as “free” short-term financing options as there is no interest charge on these items. Although companies can use these as a way

Aggressive Approach
Companies following an aggressive approach finance a part of their permanent current assets through short-term loans. The fixed assets are financed through long-term debt and equity as in the maturity matching approach and the temporary current assets through short-term loans. This is a relatively risky approach as the company needs to look for short-term finance on an ongoing basis for its permanent current assets. Below diagram shows this approach:

However, most suppliers offer a discount if a part of the credit is not utilized. For example, if a supplier says that the payment terms are 2/10, net 30, it means that a 2% discount is available if the payment is made within 10 days else, the entire payment is to be paid in 30 days. I