Managerial finance -- Chapter 15

current liabilities management
terms

Spontaneous liabilities -- financing that arises from the normal course of business; the two major short-term sources of such liabilities are accounts payable and accruals
unsecured short-term financing -- short-term financing obtained without pledging specific assets as collateral
accounts payable management -- management by the firm of the time that you lapses between its purchase of raw materials and its mailing payment to the supplier
cost of giving up a cash discount -- the implied rate of interest paid to delay payment of an account payable for additional number of days
stretching accounts payable -- paying bills as late as possible without damaging the firm's credit rating
accruals -- liabilities for services received for which payment has yet to be made
short-term, self liquidating loan -- an unsecured short-term loan in which the use to which the borrowed money is put provides the mechanism through which the loan is repaid
prime rate of interest -- the lowest rate of interest charged by leading banks on business loans to their most important business borrowers
fixed rate loan -- a loan with a rate of interest that is determined at a set increment above the prime rate and at which it remained fixed until maturity
floating-rate loan -- a loan with a rate of interest initially set at an increment above the prime rate and allowed to float or very, above prime as the prime rate varies until maturity
discount loans -- loans on which interest is paid in advance by being deducted from the amount borrowed
single payment note -- a short-term, one-time loan made to a borrower to needs funds for specific purpose for a short period
line of credit -- on agreement between a commercial bank in the business specifying the amount of unsecured short-term borrowing the bank will make available to the firm over a given period of time
operating change restrictions -- contract shall restrictions that a bank may impose on a firm's financial condition or operations as part of a line of credit agreement
compensating balance -- a required checking account balance equal to a certain percentage of the amount borrowed from a bank under a line of credit or revolving credit agreement
annual cleanup -- the requirement that for a certain number of days during the year borrowers under a line of credit carry a zero loan balance
revolving credit agreement -- a line of credit guaranteed to a borrower by a commercial bank regardless of the scarcity of money
commitment fee -- the fee that is normally charged on a revolving credit agreement; it often applies to the average on used portion of the borrower's credit line
commercial paper -- a form of financing consisting of short-term, unsecured promissory notes issued by firms with a high credit standing
letter of credit -- a letter written by a company's bank to the Company's foreign supplier, stating that the bank guarantees payment of an invoice to mount if all the underlying agreements are met
secured short-term financing -- short-term financing that has specific assets pledged as collateral
security agreement -- the agreement between the borrower and the lender that specifies the collateral held against a secured loan
percentage advance -- the percentage of the book value of the collateral that constitutes the principle of a secured loan
commercial finance companies -- lending institutions that make only secured loans -- both short-term and long-term -- to businesses
pledge of accounts receivable -- they use of a firm's accounts receivable as security, or collateral, to obtain a short-term loan
lien -- a publicly disclosed legal claim on loan collateral
nonnotification basis -- the basis on which a borrower, having pledged an account receivable, continues to collect the account payments without notifying the account customer
notification basis -- the basis on which an account customer his account has been pledged is notified to remit payment directly to the lender
factoring accounts receivable -- the outright sale of accounts receivable at a discount to a factor or other financial institution
factor -- a financial institution that specializes in purchasing accounts receivable from businesses
nonrecourse basis -- the basis on which accounts receivable are sold to a factor with the understanding that the factor accepts all credit risks on the purchased accounts
floating inventory lien -- a secured short-term loan against inventory under which the lender's claim is on the borrowers inventory in general
trust receipt inventory loan -- a secured short-term one against inventory under which the lender advances 80 - 100% of the cost of the borrowers relatively expensive inventory items in exchange for the borrowers promised to repay the lender, with accrued interest, immediately after the sale of each item of collateral
warehouse receipt loan -- a secured short-term loan against inventory under which the lender receives control of the pledged inventory collateral, which is stored by a designated warehousing company on the lender's behalf