Bill Discounting is a process where the financial institution gets the Bill of Exchange (Cheque / PO /DD etc.)

Bill Discounting is a process where the financial institution gets the Bill of Exchange (Cheque / PO /DD etc.) before its maturity date and below its par value. Hence the amount or cash realized may vary depending upon the number of days until maturity and the risk involved.

Discounting the bill of exchange is practiced to get the same immediately encashed before the maturity date. The liability in case of dishonor of the bill remains with the person in whose favor the bill is generated.

A commercial bill discount is an act by which the legal holder of a commercial bill (including banker's acceptance draft and commercial acceptance draft) transfers it to bank to acquire cash before its maturity date.

Just4uloan help you with the list of the banks and the contact details, which provides Bill discounting.

Bill disounting

While discounting a bill, the Bank buys the bill (i.e. Bill of Exchange or Promissory Note) before it is due and credits the value of the bill after a discount charge to the customer's account. The transaction is practically an advance against the security of the bill and the discount represents the interest on the advance from the date of purchase of the bill until it is due for payment.

Under certain circumstances, the Bank may discount a bill of exchange instead of negotiating them. The amount the Bank advances to you also depends on your past record and reputation of the drawee.

Usually, the Bank may want some conditions to be fulfilled to be able to discount a bill:

  1. A bill must be a usance bill
  2. It must have been accepted and bear at least two good signatures (e.g. of reputable individuals, companies or banks etc.)
  3. The Bank will normally only discount trade bills
  4. Where a usance bill is drawn at a fixed period after sight, the bill must be accepted to establish the maturity
  5. The advising or confirming bank will hide the reimbursement instruction from the beneficiary so that his bank must present the documents to the nominated bank for negotiation in order to obtain payment under the DC terms.
  6. Bills which are financed by the receiving branch, whether drawn under a DC or not, are treated as Bills Receivable by both the remitting branch and the receiving branches.

Presenting a bill


Bills may be presented to the nominated bank in two ways:

  1. Withrecourse
    We check the documents and confirm that they comply with the DC terms, and send the bill with the original DC to the nominated bank requesting payment. The nominated bank need not recheck the documents and it can claim a refund from us in the case of an unspotted discrepancy. We pay our customer after receipt of funds from the nominated bank.
  2. Withoutrecourse

    We pass the original DC and unchecked documents to the nominated bank on a collection basis, requesting payment. The nominated bank has to check the documents in the normal way. Usually, we present documents to the nominated bank without recourse:

    a. When the opening bank is a member of the Bank nominated for payment, acceptance or negotiation.

    b. When the nominated bank has confirmed the DC.

    c. When the nominated bank is the drawee.