 A short-term financial strategy allows a firm to maintain a sound liquid position. Short-term policy in this regard should give guidelines for managing investments in receivables, inventory, borrowing, foreign exchange, and risk management activities. A company's policy on short-term borrowing should focus on taking advantage of cost saving offered by any particular borrowing. There are certain sources of short-term borrowing available to a borrower. Like uncommitted lines of credit, it is a very unstable line of credit and extendable at the option of the bank as it does not require any compensation other than the interest thereon. Committed lines of credit, it is a regular and more stronger line of credit because of the bank's formal commitment and verifiable by an acknowledgement letter and it can be put noted by the borrower in its financial statement. Revolving credit agreements, the most strongest form of short-term bank loans, having formal legal agreements, defining the borrowing rates and compensations thereon, etc. There are certain short-term borrowing approaches like there should be the existence of a planned strategy to avoid any stuck in an uneconomical situation. The borrower must spend some sufficient time on developing a short-term borrowing strategy because the borrower should ensure that the firm is able to borrow at all any form of a borrowing source. There are certain objectives of short-term borrowing policy like there must be enough capability by the borrower to handle peak cash needs. There must be some maintenance of sufficient sources of credit to be able to fund the ongoing cash needs. It can be possible to ensure to keep the rates obtained are cost-effective and below the market averages. Certain factors are there to consider while borrowing. The first is size and credit worthiness. Borrower's size allows himself to get economies of scale of larger borrowings. Lender's size sets its lending limits. Borrower's credit worthiness will determine the rate, compensation or even loan. The second factor is the sufficient access of the borrower. If the borrower is a very demanding, very large borrowing, then the access to the alternative sources is better. Flexibility of borrowing options. The ability to manage maturity efficiently. Borrower needs active maturity management awareness of the market condition. The ability of the borrower to prepay loans when unexpected cash receipts are available with the borrower. Certain type of borrowing strategies are available to the borrower. The first is the passive borrowing strategy. It involves least activity with one borrowing source and type involving very much little planning. It is reactive only in response to instant cash needs. There is a routine rollovers of borrowing for the same amount each time without much comparison shopping. The second borrowing strategy is the active strategies, which is more flexible, need more planning, need reliable forecasting and seek the best deal in the market. These strategies are similar to the matching strategies where loans are scheduled to mature when large cash flows are available with the firm or the borrower. By asset-based loans, we mean the short-term loans secured against current assets of the firm, which are like accounts receivables or inventory. There is a concept of blanket lien. It is protection to the lender of the short-term asset-based loan on current and future assets of the borrower. Generating cash flows from accounts receivable. How borrower and lender can get cash flows from the accounts receivable under a lien agreement? The first approach is the assignment of accounts receivable. In this method, the lender enters into a lending agreement with the borrower where the borrower assigns its accounts receivable to the lender. But the collection of accounts receivable remains as the obligation of the borrower. The second source is the factoring of accounts receivable. In this approach, the accounts receivable are sold to a third party in order to receive cash immediately. In fact, the borrower is shifting credit guaranteeing and the collection process to the factor which is the third party. Similarly, there are ways where cash can be generated from the inventory by borrower and the lender. The first option is the inventory blanket lien. Here the lender has the claim on some or all of the inventory held by the borrower. But the borrower has a legal right to sell its inventory in the normal mode of its business. The second option with the lender is a trust receipt arrangement where the lender requires the borrower to certify that the goods are segregated and they are held in trust with proceeds of any sales directly remittable to the lender as the goods are sold. The third option with the lender is the warehouse receipt arrangement. It is similar to the trust receipt arrangement with the difference that there is a third party and that third party is the warehouse company. This warehouse company supervises the inventory position of the borrower. How we can determine the borrowing cost? There is a fundamental rule to make various forms of borrowings comparable. The rules is that compare a compute total cost of form of borrowing and divide this number by total amount of loan received adjusted by any compensating balance. In case of line of credit requiring a commitment fee, the borrowing can be determined by summing up the interest and the commitment fee over the loan amount. And if the loan is all inclusive means that the loan is also including the amount of interest therein, then we need to net off the loan amount by deducting the interest therefrom. So in that particular situation, the borrowing cost can be determined as the interest divided by the net proceed, whereas net proceed is basically the difference between loan amount and the interest thereon. And if there is a dealers fee and some other fees as well, then we need also to adjust these factors in our model to determine the borrowing cost like the model will be we need to divide the sum of interest dealers commission and backup piece over the net proceeds of the interest. So in this way we can determine the borrowing cost to be borne by the borrower under a certain short term borrowing plan.