The balance of financing requires the stability of long-term credit and the flexibility of short-term credit
Short-term credit is a source of financing for universal use that large companies do not renounce. All well-designed financing requires a balance between short-term financing and long-term financing. The reason why large companies do not give up short-term credit is that it has important advantages. Next, we will examine some of the reasons why large companies turn to short-term credit. Anyway, if you have questions or want to have someone from BBVA to advise you, remember that the entity has a team of ten experts for each client company, including a relationship director and nine specialists in different areas, from foreign trade to short or long-term financing, or investment banking and means of payment, among others.
The company’s own activity generates short-term credit. For example, taxable events that cause the accrual of taxes are carried out. Those taxes that we owe, until they are paid, will be financing the company. Something similar happens with the postponements that our suppliers grant us, and which are a usual practice for most businesses.
It is also very important to bear in mind that, in a natural way, long-term credit is turning into short-term credit, as maturities are approaching. In large companies, debt maturities issued by the company are especially important.
In every company there is a tension between the need to make investments that contribute to the growth of the company and the need to meet the payments according to the schedules foreseen for the cash flows. Long-term investments can generate more or less charges than expected. Short-term credit favors a “cushion” to avoid that a temporary situation of unexpectedly low charges may affect the ability of the company to meet its payment obligations. Thus, a credit policy with the right conditions can avoid the difficulties derived from possible imbalances in the treasury.
For example, if our company is solvent, and is simply facing a small imbalance in its treasury, BBVA can help us, for example, through the treasury obtained thanks to the credit account or the commercial discount. There are many types of loans and credits for SMEs and the self-employed because one of the keys to the success of large and small companies is an adequate management of the treasury that allows all needs to be met without committing excessive resources in highly liquid but unprofitable assets.
One of the great challenges that foreign trade poses, and that seek to solve the different means of payment in foreign trade, is the need to generate a framework that allows the supplier to get rid of the merchandise and the customer to make the payment with the confidence to each part that the other party will fulfill. The intervention of the banks favors the creation of that framework.
But, at the same time, the intervention of the bank allows obtaining financing of imports and exports in the short term (and long), offering a double service of financing and confidence generation that allows to strengthen new commercial relations in foreign countries. These opportunities for internationalization have been one of the keys to the success of large companies and, increasingly, of many SMEs.