Corporate Banking


Bill Discounting: Encash your accounts receivables

Bill Discounting

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:

  • A bill must be a usance bill
  • It must have been accepted and bear at least two good signatures (e.g. of reputable individuals, companies or banks etc.)
  • The Bank will normally only discount trade bills
  • Where a usance bill is drawn at a fixed period after sight, the bill must be accepted to establish the maturity

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.

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. With recourse
    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. Without recourse
    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

If you have a good standing, we can give you an advance against an OBN bill. You will then have to repay the advance from the proceeds of the bill.

Finance Against Collection

You as an exporter may ask the Bank for finance against a collection bill. Now, if your buyer will close the sale only if he gets credit, you may involve the Bank to arrange for the same. This will allow you to be flexible in the payment terms.

The remitting bank may finance a good creditworthy exporter by purchasing or discounting his collection bills under an "Export Line". However,

  • If the importer refuses a bill the Bank has purchased, the Bank must be sure of being able to get a refund.
  • The importer must be reliable. The Bank usually tries to avoid the risk of refusal by keeping in touch with large banks.
  • The Bank always ensures that when a bill is purchased, it is drawn on approved drawees within limits.