## Spontaneous Sources of Finance

These arise automatically from the normal course of business — no formal negotiation is needed.

### 1. Trade Credit

Credit extended by sellers/service providers to the purchasing company.
Contributes about one-third of total short-term finance needs.
When obtained without formalities, it is called "Open Account Trade Credit".
Advantages: lower cost than other sources; easily available; helps manage cash flow efficiently.

### 2. Bills Payable

A written promise by the buyer to pay the seller at a future date or on demand.
Widely used, especially by small and medium enterprises (SMEs).
The amount depends on purchase volume and payment schedule.
Advantages: simple process; no immediate payment burden; usable across all business sizes.

### 3. Accrued Expenses

Outstanding liabilities for services already used but not yet paid (e.g., wages, salaries, taxes).
A built-in, automatic source of finance.
Interest-free — no explicit or implicit cost.
Advantages: no additional cost; improves liquidity; helps manage short-term cash flow.

⚠️ Common exam mistakes

Thinking trade credit is entirely free — it carries an implicit cost when a cash discount is forgone (see Cost of Payables).
Confusing bills payable (buyer's promise to pay) with bills receivable.
Overlooking accrued expenses as a finance source just because no cash is exchanged — they genuinely fund operations interest-free.

Reference:

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Spontaneous Sources of Finance (Trade Credit, Bills Payable, Accrued Expenses)

⚠️ Common exam mistakes