Dear Sir
I have the following question to ask
1. What is bill purchasing and bill discounting. how are they different form each other.
2. How is bill purchasing and bill discounting different form bill negotation by the bank.
3. Can i know the Approx intrest rate for bill purchasing, bill discounting and Bills negotiation say for example in India
Regards,
Nevilledcosta
These phrases should be seen as follows:
"Bill purchasing" should be something like a forfaiting - a buying of the bill against payment at sight - most possibly on a without recourse basis.
"Bill discounting" is clearly on a with recourse basis. Money is given in advance with the right to redebit should the bill not be paid in due course.
"Negotiating" is an act described several times in this forum. Iwon't go into any more details - but yes! It's some action under a credit! And Yes, the negotiating bank is authorized by the issuing bank whereas a purchasing /discounting bank in most cases is not.
The approx. rates for "discounting" is the interbank rate for such term loans plus a margin of x or more often 0.x percent.
Purchasing will be slightly more expensive as the purchasing investor also has to bear del credere and politicals risks. The rate will vary according to the solvency, rating and political situation of the bill-issuer. It can range between 0.5 and 15 percent per annum.
India as a reference is of no help. Bill purchasing of a 180 days bill under a Deferred-Payment credit issued by let's say Royal Bank of Scotland will be at the cheap end - probably under 1 percent per annum. Credits of Iranian banks are at the expensive side because of the political problems and the war risk. My last quotations ranged up to 15 percent per annum - if you find someone willing to do it at all.
There is also a difference whether you are authorized to confirm - then it's cheaper - or not. Then, you would need a silent confirmation and the legal situation of the confirming bank is inferior and they make you pay more for it.
With any quotation, don't forget that your bankers need payment for their work, too.
I hope that helped.
-Each long journey starts with a small step-
Best regards
Frammi