Bill Financing

Bill Financing - Bill Financing(BF(Lesson-9 IBFS Prof C...

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1 Bill Financing (BF) (Lesson-9: IBFS) Prof. C. Anand Faculty – IBS, Hyderabad
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2 Contents This lesson deals with:- 1. Concept of Bill Finance: Definition of Bill of Exchange (B/E) and Bill Discounting 2. Features of BE 3. Classification/Types of Bills of Exchange 4. Steps in Bill Discounting 5. Bill Marketing in India 6. Processing/Pre-caution/Defaults 7. Fraudulent Practices in Bill Financing 8. Advantages of Bill Finance
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3 1. Concept of Bill Finance: Definition of Bill of Exchange (BE) and Bill Discounting Bill Financing, which is done through Bill Discounting (BD), is a (asset) fund- based financial service/activity emerged as a profitable business in the early 1990s in finance companies.
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4 (i) Def. of Bill of Exchange (B/E) : According to the Indian Negotiable Instruments Act, 1881, a B/E is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money to, or to the order of, a certain person or to the bearer of the instrument. A B/E is used for financing a transaction in goods, which means that it is essentially a trade-related instrument.
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5 ii) Discounting of the B/E : The seller, who is the Holder of an accepted B/E has two options: - Hold on to the B/E till maturity and then take the payment from the buyer. Discount the B/E with a Discounting Agency. Option (ii) above is more attractive to the seller. The seller can take-over the accepted B/E to a Discounting Agency (Bank, NBFC, Company, HNI) and obtain ready cash. The act of handing over an endorsed B/E for ready money is called Discounting the B/E. The margin between the ready money paid and the face value of the Bill is called the Discount and is calculated at a rate percentage (%) per annum on the maturity value. The maturity of a B/E is defined as the date on which payment will fall due.
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6 2. Features of Bills of Exchange : The parties to a B/E are: Drawer, Drawee, Acceptor and Payee. The Drawer or the Payee who is in possession of the bill is called the Holder. If the Holder endorses it, he is called the Endorser. The person to whom it is endorsed is called the Endorsee. The instrument must be in writing. It must contain an order to pay and not a request. A B/E cannot be drawn so as to be payable conditionally. The sum payable must be certain.
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7 2. Features of Bills of Exchange (contd.) : The person to whom the direction is given or to whom the payment is to be made must be certain. It must be signed by the drawer and presented to the drawee for acceptance. The order to pay should be in legal tender money.
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