Bill Discounting

Under Bill discounting, the lending bank takes the bill drawn by the borrower on his (borrower’s) customer and pays him immediately deducting some amount as discount/commission. The bank then presents the bill to the borrower’s customer on the due date of the bill and collects the total amount. If the bill is delayed, the borrower or his customer pays the bank a predetermined interest depending upon the terms of transaction. Thus, Bill discounting facility is the financing of short-term trade receivables through negotiable instruments. These negotiable instruments can then be discounted with other banks, if required, providing financing banks with liquidity.