What is Bill Discounting?

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Accepted Answer

Bill discounting is a financing method where a bank or financial institution purchases a company's unpaid invoices at a discount.

It is a short-term financing method
The bank or financial institution pays the company a percentage of the invoice value upfront
The bank or financial institution collects the full invoice amount from the customer
The difference between the upfront payment and the full invoice amount is the bank's profit
It helps companies to improve their cash flow by getting immediate access to funds
Example: A company has an unpaid invoice of $10,000. The bank offers to purchase the invoice at a discount of 5%. The company receives $9,500 upfront and the bank collects the full $10,000 from the customer. The bank's profit is $500.

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