What is bill discount? What is the difference between bill discount and loan issuance?

Discount of a bill refers to the demand for funds, which requires the bank or discount company to change the outstanding commercial bills, bank acceptance bills or short-term bonds in their hands into cash, the bank or discount company collects the outstanding bills or short-term bonds, deducts the interest after the discount date from the coupon amount, and then pays the cash to the drawer when the bill expires. Therefore, for the holder, the discount is to sell the final bill to the bank for liquidity, so that the capital backed by the commercial credit can be withdrawn in advance, and for the bank or discount company, discount is a lending business combined with commercial credit.
The discount market can be divided into two types. One is a transaction in which a ticket holder requests a discount to a commercial bank or a discount company for cash, which accounts for most of the business in the discount market; the other is that the Central Bank will re-discount the bills that have been discounted by commercial banks or discount companies to provide financing for banks and discount companies. Rediscount is an important means for the central bank to control financial and credit regulations. The types of discount bills can also be divided into three types: discount of bank bills, discount of commercial bills, discount of bonds and discount of treasury bonds.
Bill discount and loan issuance are both Bank's asset business and financial services for customers, but there are many differences between the two.
(1) different capital liquidity. Due to the circulation of the bill, the holder of the bill can discount the funds at a bank or discount company. Generally, a Discount Bank can only request payment from the payer when the bill expires. However, if the Bank urgently needs funds, it can discount the bill to the Central Bank. However, a loan has a validity period and cannot be recovered before it expires.
(2) interest is collected at different times. In the discount business, interest is deducted from the bill denomination when the business occurs, and interest is deducted in advance. The loan is post-event interest, which can be withdrawn together with the principal at the expiration of the term, or according to the provisions of the contract, regularly collect interest.
(3) due to different interest rates, the discount interest rate of a bill is lower than the loan interest rate, because the holder of the bill is discounted to get the current financing, not without this fund. If the discount rate is too high, the ticket holder will not be able to take advantage of the excessive cost of obtaining financing funds.
(4) Funds are used in different scopes. The holder has the right to use the fund after the bill is discounted. He can use the fund based on his own needs without any restrictions from the discount banks and companies. However, when using a loan, the borrower must be reviewed, supervised, and controlled by the loan bank, because the usage of the Loan Fund is directly related to whether the bank can recover the loan well.
(5) The stakeholders of debt claims are different. The discount debtor is not the person who applies for the discount, but the drawer, that is, the payer. When the discount is rejected, the borrower or the endorser can be used to retrieve the money. The borrower applies for the loan, and the bank has a direct debt relationship with the borrower. Sometimes the bank also asks the borrower to find a guarantor to guarantee the repayment, but it is much simpler than the relationship between the discount business.
(6) the scale and duration of the Fund are different. The discount amount of a bill is generally not large, and the amount of money for each discount business is limited. Partial discount can be allowed. The bill is generally valid for 2 to 4 months. However, there are various loan forms, with different term lengths and a large scale. When a loan expires, the borrower can continue the loan with the bank's consent.
Discount of a bill can enable some idle fund owners to use each other to gain mutual benefits. Therefore, it is now in a central position in currency market activities. The bill discount market has many special advantages compared with other markets. For banks, discount banks have the following benefits: Higher Interest income, faster capital recovery, and safer capital recovery. For discount enterprises, short-term financing funds can be obtained through discount.
The calculation formula of the discount payment amount for a bank discount bill is as follows:
Bank Discount payment = Bill amount × (1-year discount rate × 10/365 days after discount)