Question

Define discounting of bills.

Answer 1

An accepted draft or bill of exchange sold for early payment to a bank or credit institution at less than face value after the bank deducts fees and applicable interest charges. The bank or credit institution then collects full value on the draft or bill of exchange when payment comes due.

Answer 2

Answer:

Define discounting of bills:

Bill discounting is the process by which a bill of exchange is sold or traded before its maturity date and at a price that is less than its actual value.

Explanation:

Definition of a bill of exchange

A bill of exchange is a printed note or written statements of money owed to someone or an institution for services offered or goods supplied.

The drawer of the bill is the one who receives the bill and is the one owed money for services offered or goods supplied.

The bill comes with a specified date of maturity when the drawer can collect his/her money. The drawer or the one owed can decide to collect the money before the maturity date by selling the bill at a lower price than the par value to a bank or an instituition. This is what is termed as bill discounting.