1. Bill finance is one of the modes of lending by a banker. Bill finance involves discounting or purchase of commercial bills arising out of sale of goods.
2. Bill finance has following advantages-
- The transactions are easily identifiable.
- There is definite date of payments.
- It represents an easily transferable asset.
CLASSIFICATION OF BILLS
- INLAND BILLS- Bills which are drawn in India & made payable in or drawn upon any person resident in India are inland bills.
- FOREIGN BILLS- Bills which are drawn outside India & made payable in or drawn upon any person, resident in any country outside India.
- DEMAND BILLS- It is an instrument payable on demand & no time for payment is specified.
- USANCE BILLS- A Usance bill is a bill payable otherwise than on demand. Usance bills are otherwise called ‘bills payable after sight’. In these kinds of bills, the drawer draws a bill of exchange & specifies a time within which the payment shall be made.
- CLEAN BILLS- A clean bill is a bill of exchange drawn as per the requirements of the Negotiable Instruments Act & is not supported by documents of title of goods.
- DOCUMENTARY BILLS- A bill of exchange supported by documents of title of goods. These bills are drawn to claim price of goods supplied.
VARIOUS TYPES OF BILL FINANCE
- BILLS PURCHASED- When the bank negotiates bills payable on demand, whether clean or documentary, the facility is known as bill purchase. The face value of the bill is immediately paid to the holder. The bank, after purchasing the bill, becomes the holder in due course of the bill and acquires all the rights of ownership over the instrument.
- BILL DISCOUNTING- This facility is extended by a banker when the bills of exchange are payable after a particular period of time. A banker pays the face value of the bills less discount, becomes holder in due course & acquires all the rights under the bill.
- ADVANCE AGAINST BILLS FOR COLLECTION- When the bank advances against the bills, which are due course of collection, this facility is known as advance against bills for collection.
BILL FINANCE & LEGAL POSITION OF A BANKER
- In bill discounting transactions, a banker becomes a lawful holder of the bill by taking a proper endorsement of the bill in his favour. The banker becomes ‘payee’ & is entitled to recover the amount represented by the bill.
- ‘Documents of title to goods’ is one in which ownership of goods can be transferred by endorsement & delivery.
- In ‘Drawee Bills Acceptance Facility’ the bank agrees to pay the drawer the amount of bills drawn on the borrower on presentation & recovers from the drawee on the respective due dates.