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Soures of Finance

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Sources of Finance

Short Term

Postponing Paying Creditors
There is evidence that Photo-Magic PLC are postponing paying creditors back as it shows in their balance sheet that the figure for the trade creditors has risen significantly from £1,900,000 in 2003 to £2,880,000 in 2004 which shows that payments are not being made. The company have went from taking 46 days to pay creditors back to 64 days to pay them back. This is a cheap source of finance but there is the danger of losing goodwill with the suppliers and receiving a bad reputation therefore not being able to get suppliers in the future.

Reducing Stock and Debtors
There is no evidence that Photo-Magic PLC have attempted to reduce their stock however there is evidence that the company have reduced the amount that debtors owe. The balance sheet shows that stock has increased from £3,170,000 in 2003 to £3,600,000 in 2004. It is important to reduce stock and continue to reduce debtors in order to raise internal finance within the business by chasing up the debtors to get them to pay back as soon as possible as it is seen as free money due to the fact there is no interest.

Corporation Tax
The £950,000 corporation tax bill is not due to be paid until 9 months into the new financial year. This source of finance is a source of finance similar to postponing paying creditors. This source of finance can be viewed as a good source but short term only due to the fact that the company only have 9 months to pay it.

Bank Overdraft
There is no evidence of a bank overdraft within Photo-Magic PLC for 2004 but the organisation did have a bank overdraft last year of £800,000. A bank overdraft could be used as a short term source of finance to be self-liquidating such as to buy stock to then be sold which would pay off the overdraft, although this source of finance should never be seen as a long-term solution.

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