discounting bill vs purchasing bill easy way

Discounting a bill and purchasing a bill are two different financial concepts that involve different
parties and transactions.

Discounting a bill refers to the process of obtaining funds from a bank or financial institution by
selling a bill of exchange or promissory note before its maturity date. The seller of the bill receives
immediate cash, but at a discount from the face value of the bill, which represents the interest rate
charged by the bank or financial institution for advancing the funds. The buyer of the bill assumes
the risk of the debtor defaulting on the payment.

Purchasing a bill, on the other hand, refers to the process of acquiring a bill of exchange or
promissory note from a seller at its face value, which represents the amount due from the debtor on
the maturity date. The buyer of the bill assumes the right to collect the payment from the debtor on
the maturity date, but also the risk of the debtor defaulting on the payment.

In summary, discounting a bill involves selling a bill at a discount to obtain immediate cash, while
purchasing a bill involves acquiring a bill at face value to collect the payment on the maturity date.
discounting vs rediscounting bill
Discounting and rediscounting bills are both financial activities related to short-term borrowing and
lending. However, they are slightly different in terms of who is involved and when they occur.

Discounting a bill refers to a situation where a holder of a bill (usually a company) sells it to a bank at
a discount before the bill's maturity date. The bank then pays the holder the discounted value of the
bill and becomes the new holder of the bill. When the bill reaches its maturity date, the bank
presents it to the debtor for payment and receives the full value of the bill.

On the other hand, rediscounting a bill refers to a situation where a bank that holds a bill sells it to
another bank before its maturity date at a discount. The buying bank then becomes the new holder
of the bill and presents it to the debtor for payment on the maturity date.

In both cases, the discount rate is determined by the prevailing market rates and the
creditworthiness of the debtor. Discounting and rediscounting bills are common practices in short-
term financing and can help companies and banks manage their cash flow and liquidity needs.