Bill finance: Drawee bill scheme, Bill discounting

Bill finance is a type of short-term borrowing facility that is used by businesses to meet their working capital requirements. There are different types of bill finance, including drawee bill scheme and bill discounting.

Drawee Bill Scheme: In a drawee bill scheme, the seller of the goods draws a bill of exchange on the buyer (drawee) for the amount due. The bill is then sent to the buyer for acceptance, and upon acceptance, the bill becomes a negotiable instrument. The seller can then discount the bill with a bank or financial institution to receive immediate payment for the goods sold. The bank or financial institution deducts a fee from the bill amount as their commission for providing the finance.

Bill Discounting: Bill discounting is a type of bill finance where the seller of the goods draws a bill of exchange on the buyer (drawee) for the amount due and then discounts the bill with a bank or financial institution before the due date of payment. The bank or financial institution pays the seller the discounted amount immediately, deducting a fee from the bill amount as their commission. Upon maturity, the buyer pays the full amount due to the bank or financial institution.

In both drawee bill scheme and bill discounting, the seller can receive immediate payment for their goods sold, and the bank or financial institution earns a commission on the transaction. However, in drawee bill scheme, the buyer must accept the bill for the seller to receive payment, while in bill discounting, the seller receives payment immediately upon discounting the bill, regardless of the buyer’s acceptance.