Bank discount allows a company to responding to a rapid cash flow need. It can thus obtain the immediate payment of certain claims (bills of exchange) which have not yet matured by signing a discount agreement with a financing business.

The bank becomes the owner of the debts it discounts. Then it's up to him request payment of the invoice from the debtor (drawee acceptor)once the receivables come due. However, in the event of a payment incident (liquidation of the debtor by the court), it is up to the company to pay the amount of the expected commercial instrument.

Even if the company gives up bills of exchange, it retains control of its commercial relationship with its customers by granting them payment periods.

The discount therefore allows the company to obtain a cash advance from a credit institution.

On the other hand, the discount is not free, the credit institution shall not give the full amount of bills of exchange. He gets a percentage of it that matches his salary.

The cost of the discount varies from one credit institution to another. It consists of the following:

• File Fees
• Discount interest
• Fees or commissions

The discount is for all commercial companies. It is mainly used by wholesalers vis-à-vis their retailers

The receivables that can be discounted are bills of exchange. It is generally a claim that a company owns against a professional client who undertakes to repay it. This is usually a bill of exchange or a promissory note.

This concerns only claims whose debtor is one professional.

When a company wants to use the discount, it must beforehand to have concluded a discount agreement with a credit institution.

The agreement shall contain the following elements:

• Amount of agios (what the company discount costs: discount rate + other remuneration for the credit institution).
• Terms of factoring of bills of exchange (receivables)
• Conditions under which the bank may accept or refuse the trade effects which the company wishes to expect

The discount agreement does not oblige the credit institution to accept all the commercial instruments that the company wishes to expect. Indeed, it has the right to refuse certain claims if it considers that the risk is too great. The conditions under which it may refuse to discount certain instruments of exchange shall be set out in the discount agreement.

The credit institution with which the company signs a discount agreement shall grant the credit institution maximum outstanding amount. In other words, it is the amount up to which the credit institution can expect new bills of exchange. Once this amount has been reached, it is necessary to wait until the commercial bills are repaid before the outstanding amount decreases and the company can offer other commercial bills to be expected.

When trade effects are expected, they become the credit institution property who advanced their company payment. It is thus up to the credit institution to recover the amount of commercial paper from the creditor.

The credit institution may ask the company wishing to expect commercial paper to provide security in the event of default by the debtor.

If the debtor does not pay the bills of exchange (e.g. liquidation of the customer who accepted the bill of exchange), the company that made the discount must pay the amount of the bill of exchange expected to the bank. The credit institution will then debit the company's account and return the bill of exchange so that it can pursue its client if it wishes.

Thus, in the discount, the payment incident risk weighs on the company that expects the effects of trade.