Bill Discounting 💵

Definition: A short-term finance facility where a bank buys a Bill of Exchange before its due date for a price less than its face value.

The "Discount": The difference between Face Value and Price Paid is the interest (Discount) deducted by bank.

Procedure 🔄

1. Sale: Seller sells goods to Buyer on credit (e.g., 90 days).
2. Draw Bill: Seller draws a Bill of Exchange on Buyer.
3. Acceptance: Buyer accepts the bill (signs it).
4. Discounting: Seller takes accepted bill to Bank. Bank deducts interest for 90 days and pays rest to Seller.
5. Collection: On 90th day, Bank goes to Buyer and collects full amount.

Recourse: Usually, Bill Discounting is With Recourse.

• If Buyer fails to pay, Bank will recover money from Seller.

Advantages ✅

1. Instant Cash: Seller doesn't wait 3 months.
2. Liquidity: Converts receivables into cash.
3. No Collateral: Usually granted against the bill itself (and seller's creditworthiness).
4. Bank's Safety: Bill is a negotiable instrument (Legal protection).

Quiz Time! 🎯

💡 Final Wisdom: "Time is money. Bill Discounting lets you trade a little money (Discount) to buy time (Immediate Cash)!" ⏳💵

Next up: Factoring - A step ahead of Bill Discounting! 🧾