Question

Discuss the meaning of discounting bills of exchange.

Answer 1

Discounting of the bill refers to the encashment of the bill before the date of its maturity. The bank deducts its charges from the bill.

• The bank shall make the payment of the bill after deducting some interest (called a discount in this case). This process of encashing the bill with the bank is called discounting the bill
• The bank gets the amount from the drawee on the due date

Returning of the bill

• When the Drawee pays the bill before its due date, It is termed as the retirement of a bill
• It happens with the mutual understanding between the Drawer and the Drawee
• To encourage Retiring of the bill, the holder allows some discount called Rebate on the bill amount from the date of retiring the bill to the maturity