CMA Intermediate · Financial Management and Business Data Analytics · Financing Working Capital
Which of the following is a spontaneous source of short-term working capital finance for a manufacturing company?
Trade credit from suppliers is the spontaneous source. It arises automatically in the normal course of buying goods on credit and rises or falls with purchases, without any separate negotiation. Bank cash credit, commercial paper and factoring need formal arrangements.
- ATrade credit from suppliersCorrect
- BCash credit from a bank
- CCommercial paper issued in the money market
- DFactoring of receivables with recourse
Explanation
Trade credit arises automatically from the purchase of goods on credit and grows with the level of operations, so it is spontaneous. Cash credit, commercial paper and factoring all require negotiation, documentation or a formal arrangement, so they are not spontaneous.
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