Internal Sources of Finance for a Business

Updated February 21, 2017

The external forms of funding available to a business such as a line of credit, a loan or investment capital are well-known to entrepreneurs and business executives. Before signing up for an external form of funding for your business, first consider the different kinds of internal funding. Your company has resources that can be used to fund new projects, and you can use internal sources of finance for a business without having to pay interest.

Profit From Revenue

If your business is generating profit from the revenue brought in by sales, then you can use that profit as a source of internal funding. Sometimes a company can become reliant on credit to pay bills and meet payroll, and then stockpile cash reserves to be used in case a line of credit dries up. Rather than using credit to save cash, reinvest the profit from your business into your operations as a source of funding.

Past Due Receivables

Accounts receivable is the portion of a business that takes in customer payments and applies them to invoices. Many companies have a backlog of accounts receivable invoices that are 45 days or more past due. While your company is waiting to get paid by the customer, it is forced to borrow money to pay outgoing invoices. Rather than have those past due receivables become a financial burden, sell them to an accounts receivables organisation and get a percentage of the money you are owed that you can use to apply to your outgoing invoices.

Sale of Old Equipment

If your company has old equipment that is still in usable condition but no longer of any value to the company, then sell that equipment as a source of internal funding. If the equipment has been paid in full and completely depreciated, then any money brought in by selling that equipment can be considered profit. You can set up an arrangement with a local consignment organisation to sell the equipment for you, or you can dedicate some of your operations staff to selling it.

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About the Author

George N. Root III began writing professionally in 1985. His publishing credits include a weekly column in the "Lockport Union Sun and Journal" along with the "Spectrum," the "Niagara Falls Gazette," "Tonawanda News," "Watertown Daily News" and the "Buffalo News." Root has a Bachelor of Arts in English from the State University of New York, Buffalo.