Advantages of Bills Discounting to Banks:
- Safety of Funds: A bill of exchange bears signatures of two parties, drawer and the acceptor. If the acceptor does not honour the bill, the drawer is liable to pay the amount of the bill to the discounting banker
- Profitability: Discount is front-ended, i.e deduction from the amount of the bill at the time of discounting so the yield is higher than that on loans
Bills Purchased, in trade finance, allows a seller to obtain financing and receive immediate funds in exchange for a sales document not drawn under a letter of credit. The bank will send the sales documents to the buyer’s bank on behalf of the seller.
