Bill discounting and advances
The bank pays the small business’s receivables arising from its business or commercial activity in advance.
The conditions, interest, fees and charges are agreed under a framework contract or a bill discount facility.
- Traditional discounting relates to trade bills (such as bills of exchange and promissory notes) and is subject to Law 19/1985 on Cheques and Bills of Exhange (in Spanish)Abre en ventana nueva. In these cases, banks usually require additional guarantees from borrowers in the form of counter-guarantee policies.
- Bills, invoices, works certificates and other documents representing future collection rights may often also be discounted.
- Lastly, banks may also issue bills of exchange to customers for them to discount as a way of raising finance.
Under current banking transparency legislation, any subsequent contractual changes must be notified in advance so customers can decide whether or not to continue the agreement.
Invoice or receivables discounting differs from traditional bill discounting in that rather than bills of exchange trade receivables are discounted and do not need to be linked to an account. As the bank only manages credit collection and does not take over the collection rights or take ownership, no stamp duty applies.