Bill discounting is called as such because it's an arrangement whereby the seller recovers an amount of sales bill from the financial intermediaries before due date. This type of discounting generates additional working capital finance for the seller of goods.
In a export transaction, an export bill discounting means that a bank buys from the exporter the undue time draft avalosed by banks or the undue debt claim honored by banks under an export L/C, or the undue debt claim guaranteed by banks under the documentary collection.
They are two types of draft discounting:
Accepted draft discounting: it means that the bearer of the acceptance draft sells the draft to a commercial bank for an amount of funds before its maturity. The discounting bank takes the risk of the buyer (obligor) to pay at maturity and therefore assume the corporate risk.
Avalised Draft Discounting: this approach reminds the discounting of an accepted draft but the exporter requires the buyer’s bank to add its guarantee (avalisation) to this draft. In this case the risk transfers to the avalising bank and the seller's bank discounts the payment risk of the avalising bank without recourse to the underlying seller.
TRADEFINANCE.AFRICA COUNTRIES OF EXPERTISE