Commercial Bill

It is an instrument that helps companies to get advance payment for the invoices they raise after making sales to their customers. These are unsecured, short-term debt issued by corporations for the financing of short-term liabilities and inventory. Commercial Bill is also referred to as a Bill of Exchange. A bill of exchange, then, is a written order from the creditor to the debtor to pay a specific amount to a specific person after a set period of time. A bill of exchange is a negotiable "self-liquidating" paper.

All India Financial Institutions (AIFIs), NonBanking Finance Companies (NBFCs), Scheduled Commercial Banks, Merchant Banks, Co-operative Banks, and Mutual Funds all issue CBs, which were first issued in 1990.

Types of commercial bills:

• Demand and usance bills.

• Inland and foreign bills

• Clean and documentary bills.

• Indigenous Bills; and

• Accommodation and Supply Bills.

The seller (drawer) issues commercial bills to the buyer (drawee) for the value of items delivered by him.

These bills have a maturity of 30 days, 60 days, or 90 days. If the seller needs funds, he might prepare a bill and send it to the buyer for approval.

The buyer agrees to pay the debt and guarantees to do so by the due date. He might potentially go to his bank and ask them to accept the bill.

The bank charges a fee for accepting the bill and guarantees to pay the amount of the buyer defaults.

The vendor can then sell it in the market once this process is completed. A commercial bill becomes a marketable investment in this manner. Typically, the seller will go to the bank to have the bill discounted.

After deducting the interest for the remaining duration of the bill and service charges from the face amount of the bill, the bank will pay him.

On bills, the interest rate is referred to as the discount rate. The commercial bill market is a vital source of short-term financing for businesses.