cheque discounting facility

NEXT

Another kind of trade finance facility offered by Banks is cheque discounting facility. Under this facility post dated cheques received by customers from his customer can be discounted and will be paid by the Bank before the actual due date of the cheque.

You might that why would a Bank discount a post dated cheque when payment of this cheque is not guaranteed on due date. The Bank discounts the cheque at a charge and this is debited on the day the cheque is discounted and paid to the customer.

Bank takes the risk of that cheque till due date and presents it for payment on the date mentioned on the cheque. Generally, these kind of cheques gets cleared and the Bank receives its money but in some cases the cheque is returned due to insufficient funds. In such a scenario, Bank contacts its customer and requests them to pay the amount of the cheque since it was returned unpaid due to insufficient funds and he can contact his party and try and get the funds or take the dispute forward legally.

Charges charged under this facility are mentioned on the Bank's website and are also informed to customer when the customer requests for such facilities. Also, cheque discounting facility is not offered to all customers but is provided to few customers who are trust worthy in the eyes of the Bank and has maintained good relations with the Bank.

Also, Banks provide LC discounting facility, details about LC (Letter of Credit) were provided in my previous blog and LC is issued by Banks confirming payment. Both cheque discounting facility and LC discounting facility is subject to Banks approval as is the case for any request submitted to the Bank.

This kind of facilities are requested by customers who are in need of urgent working capital and do not want to wait till the payment date.