Bill Discounting

Bill Discounting

Apply Now

What is Bill Discounting?

Bill discounting is an arrangement whereby the seller recovers an amount of sales bill from the financial intermediaries before it is due. Such intermediaries charge a fee for the service. From the other side, it is a business vertical for all types of financial intermediaries such as banks, financial institutions, NBFCs, etc.

A bill of exchange is a negotiable instrument which is negotiable mere by endorsing the name. Our currency is a bill of exchange for example. Currency provides value written over it to the bearer of the instrument. In the case of bill discounting, such bills can be either payable to the bearer or payable to order. Therefore, after discounting a bill, a bank can further get the bill re-discounted from other banks in case of cash flow requirement.

 

The Process of bill discounting

  • The seller sells the goods on credit and raises invoice on the buyer.
  • The buyer accepts the invoice. By accepting, the buyer acknowledges paying on the due date.
  • Seller approaches the financing company to discount it.
  • The financing company assures itself of the legitimacy of the bill and creditworthiness of the buyer.
  • The financing company avails the fund to the seller after deducting appropriate margin, discount and fee as per the norms.
  • The seller gets the funds and uses it for further business.
  • On the due date of payment, the financial intermediary or the seller collects the money from the buyer. ‘Who will collect the money’ depends on the agreement between the seller and financing company.

Bill Discounting NBFC

Non-banking financial companies (NBFCs) are financial institutions that extend numerous banking services, however, they do not have a banking license. NBFCs can offer banking services such as loans and credit facilities, retirement planning, money markets, underwriting, and merger activities.

Bill Discounting Is A Type Of Loan

Bill discounting is a type of loan as the Bank takes the bill drawn by borrower on his (borrower’s) customer and pay him immediately like a loan, later deducting some amount as discount/commission The Bank then presents the Bill to the borrower’s client on the due date of the Bill and collects the whole amount on the bill. If the bill is delayed, the borrower or his client pay the Bank a pre-determined interest relying upon the terms of the transaction.  

Documents Check-list

The document required for processing of “Bill Discounting” are:

  • The bill of exchange arising out of genuine trade transaction duly accepted by the Drawee.
  • Receipted Challan/Excise Gate pass evidencing dispatch and receipt of goods in duplicate.
  • Copies of Invoice & Purchase Order.
  • Documents of title of goods that is Lorry receipt/ railway receipt etc.
  • If the bill is delayed, the borrower or his customer pays the Bank a pre-determined interest depending upon the terms of transaction.
  • Collateral security required as per Banks Prescribed norms.
  • Service charges as applicable.