Discuss the Meaning of Discounting Bills of Exchange
By BYJU'S Exam Prep
Updated on: September 11th, 2023
The Meaning of Discounting Bills of Exchange is the Encashment of a bill before its maturity date. The bank deducts its charges from the invoice. The bank will pay the invoice after deducting some interest (called a discount in this case). This procedure of encashing the check with the bank is known as discounting the bill. The bank receives the money from the drawee on the due date.
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Meaning of Discounting Bills of Exchange
Discounting bills of exchange is a popular type of loan provided by modern banks. Using this method, the bank will give the bill of exchange holder a discount.
- The debtor agrees to accept the creditor’s bills (i.e., the bills’ owner) in exchange and to pay the indicated amount when the bills mature.
- The bank gives the owner the invoice amount after a small reduction (in the form of a charge).
- When the bill of exchange expires, the party who accepted it pays the bank. As a result, the loan is self-clearing.
- A legally binding exchange invoice details the seller’s commitment to pay a specific amount to the vendor or recipient on a specific date.
Returning the Bill
- When Drawee settles an invoice before the due date, it is referred to as the “retirement of a bill.”
- It happens as a result of the Drawer and Drawee’s mutual understanding.
- To encourage retirement, the holder allows a refund on the bill amount from the day the bill is retired until its maturity.
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