What is the repayment period for short-term sources of finance?

The repayment period for short-term sources of finance is typically within one year. Short-term finance is used to address immediate financial needs and expenditures, such as operating costs or inventory purchases, which usually arise and need resolution quickly.

This one-year timeframe is standard as it allows businesses to manage their cash flow effectively and ensures that debts are settled before they can become burdensome, as longer repayment periods could compromise the financial stability of the business. Types of short-term financing include overdrafts, trade credit, and short-term loans, all of which are designed to be quickly repaid, reinforcing the concept that they are to be managed within a one-year horizon.

Other options suggest timeframes that extend beyond one year, which do not align with the definition of short-term finance, clarifying the unique and immediate nature of these financial sources.