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Bill discounting/ Trade finance

Bill discounting facility to enable you realise your receivables earlier.

One time bill discounting or setting up bill discounting limit for your business needs.

We can help you to increase immidiate liquidity into your business.

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Bill discounting can be technically defined as the selling of bill to invoice discounting company before the due date of payment at a value which is less than the invoice amount. The difference between the bill amount and the amount paid is the fee of the bill discounting to the company. The fee will depend on the period left before payment date, amount and the perceived risk.

The buyers and sellers of goods have conflicting objectives. The seller wishes to get paid immediately and the buyer wants as longer credit period as possible. Invoice discounting is the solution to the problem which creates a win-win situation. The seller gets money almost instantly on payment of a charges and is able to satisfy its customer with credit period. The invoice discounting is an easy way of getting finance.

There are two ways of discounting which banks provides either one time discount or set a monthly limit of discounting amount.

As per the Negotiable Instruments Act 1881, a bill of exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of a certain person or to the bearer of the instrument. Further are the characteristics of the bill of exchange:

  • A bill of exchange is in writing.
  • It is an order to make payment.
  • The order to make payment is unconditional.
  • The maker of the bill of exchange must sign it.
  • The payment to be made must be certain.
  • The date on which payment is made must also be certain.
  • The bill of exchange must be payable to a certain person.
  • The amount mentioned in the bill of exchange is payable either on demand or on the expiry of a fixed period of time.
  • It must be stamped as per the requirement of law.

NBFC & banks generally discounts bill in exchange of discounting charges which are governed by RBI.

Process/Checklist/Draft:

The process of bill discounting is simple and logical.

  • 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.