What is Internal Source of Finance ?

What is the Internal Source of Finance ?

Internal sources of finance are funds that are created by the company itself. Internal sources of finance can be found in different ways. Some companies use them to fund their business and others use them for investment.

Internal finance is a crucial aspect of success for companies because it helps companies avoid external funding and focus on their internal operations, development and growth.

What are the sources for Internal Finance ?

There are various sources from which a company can raise funds internally. The sources of finance internal to organization are :

1. Retained Earnings
2. Accumulated Depreciation
3. Advance from Customers
4. Trade Credit
5. Reserves
6. Unpaid Liability
7. Unpaid Dividend
8. Unpaid Interest on Debentures
9. Sale of an assets
10. Savings

Advantages of Internal Source of Finance

1. Useful for expansion and diversification
2. Economical source of Finance
3. No fixed obligation
4. Flexible source
5. Increase the share value
6. Avoid excessive tax
7. Increase earning capacity

Disadvantages of Internal Source of Finance

1. Misuse of funds.
2. This makes company operation monopolistic.
3. Over capitalization
4. Tax Evasion
5. Dissatisfaction by shareholders