The bill is considered one of the main instruments of credit and settlement operations. Its appearance is associated with the emergence of the need to transfer money from one region to another and in the exchange of coins for foreign currency. After reading today's article, you will delve into the main features of bill of credit.
The most important concepts
It should be understood that under the bill mean a special kind of securities issued by the enterprise. In the future, they can be sold to legal entities or individuals. Such operations allow the issuing company to receive the missing amount of money.
Each bill has a strictly defined return period. This means that the owner of the securities may, in advance of time, demand their exchange for previously invested funds. In addition, such operations involve the payment of cash compensation. At its core, a bill of credit is nothing more than a kind of sale and purchase transaction. The interest rate on the loan correlates with the maturity of the securities. In addition, the agreement concluded with such a loan contains all the information about the terms of full repayment of the debt.
Types of bills
To date, two main types of such papers are issued. A promissory note is a document containing a requirement to return a specified amount of money in strictly agreed terms. A transferable involves a refund in favor of a specific third party.
The period for which the registration and issuance of securities is carried out largely depends on the agreements between the borrower and the lender. Usually this period varies from three to twelve months. Long-term bills are issued for more than a year.
Key Features
It should be noted that the conditions under which promissory notes are issued are more advantageous than standard cash loans. The main features are the short-term nature of such loans. Usually their maturity does not exceed one year.
Also, even before the expiration of the loan agreement, the borrower must transfer to the bank a fee and cash compensation for the securities received. In addition, all these payments are made at a time.
The amount of the bill loan commission does not depend on how the amount of the loan has changed over the entire term. In other words, in this case there is completely no amortization of the loan.
According to the agreement concluded upon execution of such a loan, the date of return of the loan does not coincide with the day of repayment of the bill. This should happen a little earlier.
Clearance mechanism
All existing promissory notes loans are divided into two main groups. The first includes bearer, including accounting and collateral. They are accepted by banking institutions at the client, in the role of which is a legal entity, giving out a certain amount in return. The second includes promissory notes, in which securities are used as collateral.
Legal entities that have passed all the procedures prescribed by the bank receive a loan to purchase a bill. Using this security, the company pays with its supplier for the products sold.
After the sale of goods and receipt of funds, the legal entity returns to the bank the amount previously taken along with the interest calculated on it.
With the help of a bill remaining in the ownership of the supplier, the latter has the right to settle accounts with its counterparties. He can also return securities to the bank and receive a certain amount for them.
Accounting for bill loans by the bank is that the borrower transfers the securities by endorsement before the due date for them and receives in return a fixed amount minus a certain percentage, called a discount.
Benefits
The existence of such loans has a positive effect on the state of the financial and economic system. One of the main advantages possessed by bill credits of commercial banks is the availability of opportunities for a substantial increase in the volume of purchased goods due to cheaper loans and an increase in deferred payments.
Companies that use securities for settlement with their suppliers are entitled to a VAT refund on the products received. In addition, such transactions can minimize the risk of non-payments, since all liability for bills is transferred to the banking institution that purchased them. Registration of such a loan is usually carried out according to a simplified procedure.
It is also important that mutual settlements made using highly liquid bills can significantly reduce the interest rate for commercial loans provided by suppliers of products. This is because such securities can be equated with cash.
disadvantages
Despite all of the above advantages, bill loans have several significant disadvantages. To date, there are a number of objective reasons that reduce the popularity of this financial instrument. Initially, such loans involve significant financial costs from the borrower. It should be understood that the client loses his own funds not only due to discount, but due to accrued bank interest.
As for the creditor company, the issuance of such a loan also implies the presence of a considerable number of negative factors. The main one is the occurrence of risk situations that lead to protests of securities and large sums of money that were legally reserved. But, despite all the shortcomings that bill loans have, one should not completely abandon this financial instrument. This is especially true in those situations when it comes to bill elements, characterized by a high degree of activity.