Question

What is meant by Discounting of a Bill of Exchange?

Answer 1

Businessmen receive bills of exchange from their customers who buy goods on credit. Commercial banks pay the amount of a bill before the date of its maturity after deducting discount (interest) charges. On the date of maturity the bank gets payment of the bill from its acceptor. If the bill discounted is dishonoured, the bank receives the payment from the customer who discounted the bill.