Name two common sources of short-term financing for working capital.

• A. Bank overdraft and long-term debt
• B. Revolving line of credit and supplier credit (trade credit)
• C. Equity investments and venture capital
• D. Bonds and commercial paper

Answer: (B)

When managing working capital, you want sources that fit the short time horizon of day-to-day cash needs. A revolving line of credit provides a bank-approved borrowing limit you can draw on as needed and repay to restore the available balance. It’s highly flexible, with interest charged only on what you actually borrow, making it ideal for smoothing gaps in receipts, payroll, and inventory purchases.

Supplier credit, or trade credit, is another common short-term source. Suppliers let you receive goods or services now and pay later within a set period, such as 30, 60, or 90 days. This effectively funds purchases for a short window and improves the cash conversion cycle since cash outlay is delayed.

The other options mix instruments that aren’t both suited to short-term working capital. A bank overdraft is short-term, but pairing it with long-term debt isn’t typical for everyday working capital needs. Equity investments and venture capital are long-term funding that doesn’t directly finance ongoing operational needs. Bonds and commercial paper include both long-term and short-term instruments, so they don’t represent two standard, readily accessible short-term sources for working capital management.