Invoice discounting is the solution to the problem which creates a win-win situation.
Importers bank notifies to the buyer for acceptance of bills and allows sundance promo code april 2015 the importer to take the delivery of the documents of title to goods against acceptance bill.
What is forfaiting, what is International factoring?The documents of title to goods of DA bills are delivered to drawee (buyer) by the collecting bank against acceptance of bills by the drawee.It allows an entrepreneur to do business without funds.Quick to access funds can be released within 24 hours.Therefore, after discounting a bill, a bank can further get the bill rediscounted from other banks in case of cash flow requirement.Bill discounting bridges this gap by allowing an intermediary, normally a factoring company or a financier, to purchase a bill of exchange from a seller ahead of it being paid, in return for immediate payment of the invoice, less fees.Bills finance is short term and self- liquidating finance in nature.Such bills are normally delivered to drawee on the basis of documents against acceptance (DA terms).
The drawer of the bill (seller of the goods) trades such accepted DA bill with his bank for a value less than its face value.
Usually, the banks accept only documentary bills for purchase as the clean bills do not possess the title to goods and therefore purchasing clean bills are not safe.
The financing company assures itself of the legitimacy of the bill and creditworthiness of the buyer.
Bill discounting is an arrangement whereby the seller recovers an amount of sales bill from the financial intermediaries before it is due.
Click below for related articles: Checklist for banks financing LC/ co-accepted bills.Difference between Prime and Collateral security.Who will collect the money depends on the agreement between the seller and financing company.Such intermediaries charge a fee for the service.The business gets the funds, once the payment is due from the buyer, the financier collects payment on behalf of the business from the end customer.The buyer accepts the invoice.The business sells its goods or services, offering credit and raising an invoice to the buyer / customer.Improved cash flow and working capital.Last updated on : August 31st, 2017.The interest collected by the bank for usance period of the bill is called Discount income.