Overdraft Advantages And Disadvantages

Overdraft – An overdraft is a short-term source of finance. This is when the bank allows the owner to take out more money out of their bank account than they have [1]. These are only used when they are absolutely necessary as they tend to have a higher interest rate than a typical loan. This would useful for Sports Direct if they do not have any money within in the business to purchase more stock or to pay employees. Advantages of an overdraft is that it is simple to set-up, allowing you to quickly fix cash flow issues. Because it is easy to take out an overdraft, this makes it incredibly easy to make essential payments within the business. Disadvantages of an overdraft is that it tends to have a higher interest rate than a loan, and you may face charges if you go over the limit. This makes the overdraft a bad solution if you are looking for a long-term source of finance and therefore would be much tougher to pay the full sum + interest back.

Loan – A loan is when the business would borrow a fixed amount of money, this would normally be paid back in monthly segments with

This would be useful to Sports Direct if they are unable to generate enough money to pay off debts towards manufactures. An advantage to factoring is that it allows the business to pay of the remaining sum of the debt which couldn’t have been paid before. Another advantage to factoring is that it saves a lot of time; the business could be wasting too much time in getting sums to pay the debt and can’t focus on other aspects of the business. A disadvantage to factoring could be that it can take a while for it to be put through, which can be time which can be used much more productively within the business. Another disadvantage to factoring is that factoring companies tend to charge a higher interest than a typical bank