Discount 

Discounting refers to the cash payment of an outstanding credit instrument (usually a bill of exchange), after discounting interests and losses during the period between the advance payment and the expiry of the loan.

Discount = Nominal - Cash

Nominal refers to the sum to be discounted and Cash is the capital received, once the interest has been discounted.

Types

• Trade discounts

  This is a discount made by a credit institution on commercial paper, drafts, promissory notes or other instruments that work in the same way as drafts, with the aim of freeing up the cost of purchasing or selling goods and/or services.

  • Beneficiaries

    The main users of the discount are sole traders and trading companies, however other non-trading companies can also discount their bills.

  • Discountable documents

    Discounts are mainly applied to bills of exchange, however, these can also be applied to receipts, personal cheques, bank cheques, certificates, contracts, and policies, among others.

  • Discount conditions

    We recommend a standing order for the bills, since higher charges apply otherwise.
    There is a minimum charge to be paid per bill, but no maximum, as this is calculated in proportion to the amount.
    The bills must be issued on fiscal paper and Stamp Duty Tax must be paid.

• Advance discounts

  This type of discount is calculated for the whole duration of the term and the interests are discounted in advance. This means that the longer the duration of the bill, the higher the effective rate will be. Thus, interest will be repaid at an annual interest rate every quarter to settle this kind of operation.

• Financial discounts

  This is the loan of bills or promissory notes created specifically for said loan, which has been accepted or issued by the borrower.

  Bills are usually paid directly by the credit institution and a charge is generally attached. In the case of bills that are not going to be rediscounted, the Bank or Savings Bank is not normally the issuer. Generally speaking, a third party endorses the bill ordering the Institution to make the payment into the beneficiary's and acceptor's account, and the bill is issued at the order of the lending Bank or Savings Bank.

  • Bills

    These are loans granted for 3 or 6 months. When they are granted for a longer period, the discount rate is normally higher and they are generally renewed every 6 months with some discount applied to the nominal.

  • Financial discounts with clearing account

    A loan formalized in a bill normally implies a considerably higher cost if the beneficiary does not utilize all the funds immediately and during the entire term of the bill, as the interests due are calculated on the total amount of the loan. For this reason, a loan agreement through a current account is preferable, since interest depends on the amount used. If the bill is used, one way to reduce costs is to open a current account to offset the interests when the bill or promissory note is executed. Then, the cash representing the discount will be deposited in this account and, from that moment on, this account will operate in the same way as a credit account, and an interest rate that is somewhat lower than the one applied to the discount is set, to remunerate the credit balances of the account. This account should not have a debit balance, since this will imply an overdraft. However, if this is permitted by the credit institution, interests and charges will be treated as with a current account.

• Discount of certifications

  This operation is carried out above all with public works and supplies contracts. Payment is authorized by presenting certificates (one at a time, or for the entire works or supplies all together). The suppliers or those carrying out the works present these documents for discount. Any Credit Institution can accept these at the discount granting between 80 and 90% of the nominal value. The Bank will treat this as it would a bill, calculating the interest until the date the debtor pays. The certifications are endorsed with the words "valor recibido" (value received), and the institution that receives them is responsible for presenting them to the issuing body so that the endorsement can be recorded.