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- Understanding Indirect Sources of Finance in Business | Learning Finance 006
Understanding Indirect Sources of Finance in Business | Learning Finance 006
Learn about indirect sources of finance in business and how stakeholders like vendors, customers, and employees contribute to financing companies. Explore the concept of indirect finance in this educational video series on finance.
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Video Transcript
Friends, welcome to video 6 in the video series learning finance can be fun.
In this video, we are going to deal with indirect sources of finance for a company.
In the last video, you will remember we dealt with direct sources of finance which are called
as equity and debt.
So what is indirect source of finance?
The last video we spoke about equity and debt where the people get associated with the business
with the objective of financing it. On the other hand, in case of indirect sources of finance,
there are different stakeholders who get associated with business for a reason other
than to finance it and we are going to deal with all those in the next slides. But very quickly,
they may include our vendors, they may include customers, they would include employees. So let's
deal with how each one of them indirectly provides.
provides a source of finance to the business.
Vendors, as we all know,
vendors usually when they provide goods and services to us,
they also often give time to make payment.
This is called as giving credit.
And to that extent, we enjoy those goods and services without making payment for them.
We may even convert them into a finished product, realize that money,
but we may not have paid the vendor.
So indirectly the vendor has also financed us.
Let's look at the next such source of finance.
Now let's deal with customers as an indirect source of finance.
Now most businesses have to invest their own money to produce those goods or services.
And on top they have to provide credit to their own customers.
So in such a case there is no question of the customers financing us.
We are actually financing them just like our wedding.
renders finances.
But some businesses are really lucky where the customers pay us upfront even before the
goods or services are rendered.
In case of goods this can happen because of monopoly.
In case of services particularly this happens in certain cases like coaching classes or
insurance companies where the customers pay upfront and only then they get the service.
In such cases the customers are indirectly financing us.
Another way we can get indirect finance is from our distributors.
Where a company appoints distributors or CNF agents.
Those distributors or CNF agents who are a part of the supply chain
are required to give an advance to the company.
When they give an advance,
that I
indirectly financing us because that money we can use in our own business. Of
course not in all cases we can demand these deposits it really depends on how
strong our brand is. Stronger the brand higher is our ability to get advance
from the distributors. Interestingly government also indirectly finances us
for instance we levy GST to our customers on the goods and services and
and in some cases we may collect the money quickly from them.
However, the government gives us time to make payment.
In the interim, the money is lying with us and therefore the government is indirectly financing us.
At a later stage, I will also discuss one more way the government finances us indirectly
and that is called as Deferred Tax, but that is for another video which is going to come up sometime later.
Employees also start working from day 1 of the month.
