This chapter focuses on short-term financial planning. Short-term financial decisions differ from long-term financial decisions in two important ways. First, they are easily reversed in most cases. Second, there is far less uncertainty about the decision variables as you are concerned with the next few months rather than years. This does not mean that short-term financial decisions are any less important. Short-term financial decisions ensure the firm's liquidity and are critical to the short-term survival of the business.

Firms finance their operations from short-term and long-term sources. Although short-term financial decisions almost always involve short-lived assets, there is a linkage between short-term and long-term financing decisions arising from a firm's cumulative capital requirements. If you have a surplus of long-term financing, you would need less short-term funds. Ordinarily, financial managers try to match the maturity of capital sources with the life of the assets funded by them. For example, some minimum level of working capital is needed permanently in the business and is financed from permanent sources, whereas the seasonal increase in working capital typically is financed from short-term sources.

The chapter also provides a brief review of important sources of short-term financing. The primary short-term funding sources are loans from commercial banks and direct market borrowing through commercial paper issues. Commercial banks provide different types of loans and lines of credit and remain a major source of funding for corporations, though their market share has decreased significantly in the last two decades.