HOW BILL DISCOUNTING IS CREATED

 Process of Invoice Discounting

 Invoices are being raised when the seller sells the goods on credit
 Accepting the invoice means, that the buyer has acknowledged on paying the amount on
due date
 For discounting purposes, seller approaches the financial institution
 As per the creditworthiness of the buyer and legitimacy of the bill, the bank or NBFC is
assured
 Bank or NBFC disburses the fund to the seller post deducting the fee, discount and
appropriate margin which is already defined
 Furthermore, the seller receives the funds which can be used for other business
purposes

CONDITIONS OF BILL DISCOUNTING

The eligibility criteria for bill discounting shall vary from lender to lender and is defined by
the respective financial institution offering loan.

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) Wherever a usance bill is is drawn at a fixed period after sight ,the bill must be accepted
to establish the maturity

 Factors that affect Eligibility

 Business Vintage
 Business Volume and Annual Turnover
 Financial Stability
 Repayment history and capability
 Business Positive Net worth or Profitability
 Credit rating of business
 Previous loan defaults, if any

BILLS OF EXCHANGE
IT can be best described as a written order to a person requiring them to make a
specified payment to the signatory or to a named payee; a promissory note

TYPES OF BILLS
DEMAND BILL: a bill of exchange which must be paid when payment is asked for
USANCE BILL: a bill of exchange which allows the drawee to have period of credit or
term and is usually stated in days or months by the drawee

DOCUMENTARY BILL: A key document in documentary collections is the bill of

exchange or draft ,which is a formal demand for payment from the exporter to importer

CLEAN BILL: Bills of exchange (drafts,cheques ,etc.) drawn payable overseas and which
are not accompanied by commercial documents.