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14 September 2011 what is a commercial bill?

CA Ravi Sisodia

CA Ravi Sisodia (Expert)
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14 September 2011 The working capital requirement of business firms is provided by banks through cash-credits / overdraft and purchase/discounting of commercial bills.

Commercial bill is a short term, negotiable, and self-liquidating instrument with low risk. It enhances he liability to make payment in a fixed date when goods are bought on credit.

According to the Indian Negotiable Instruments Act, 1881, bill or exchange is a written instrument containing an unconditional order, signed by the maker, directing to pay a certain amount of money only to a particular person, or to the bearer of the instrument.
Bills of exchange are negotiable instruments drawn by the seller (drawer) on the buyer (drawee) or the value of the goods delivered to him. Such bills are called trade bills. When trade bills are accepted by commercial banks, they are called commercial bills.
The bank discount this bill by keeping a certain margin and credits the proceeds. Banks, when in need of money, can also get such bills rediscounted by financial institutions such as LIC, UTI, GIC, ICICI and IRBI. The maturity period of the bills varies from 30 days, 60 days or 90 days, depending on the credit extended in the industry.

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CA Ravi Sisodia

CA Ravi Sisodia (Expert)
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14 September 2011 A commercial bill assists you to raise the finance you need for investment purposes through negotiable bank bills.

The interest rate, or ‘floor’ rate, is based on two things, the Bank Bill Swap Rate (BBSW), and a margin added by the lender of 1.00-3.00% called the facility fee.
This margin can vary significantly between lenders, depending on a combination of factors including the financial strength of the borrower, the underlying security, competitive pressures etc.

The bills can be either variable rate or fixed rate, with periods varying between 1 and 10 years.
During the loan term there are ‘rollover’ periods, at which time the interest rate and the amount borrowed may be recalculated. The rollover period may be 30, 60, 90, 180 days, 6 monthly or even annually. Interest is paid at each rollover, and you may negotiate any number of combinations to suit you.

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CMA Gul S

CMA Gul S (Expert)
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14 September 2011 The working capital requirement of business firms is provided by banks through cash-credits / overdraft and purchase/discounting of commercial bills.
Commercial bill is a short term, negotiable, and self-liquidating instrument with low risk. It enhances he liability to make payment in a fixed date when goods are bought on credit. According to the Indian Negotiable Instruments Act, 1881, bill or exchange is a written instrument containing an unconditional order, signed by the maker, directing to pay a certain amount of money only to a particular person, or to the bearer of the instrument. Bills of exchange are negotiable instruments drawn by the seller (drawer) on the buyer (drawee) or the value of the goods delivered to him. Such bills are called trade bills. When trade bills are accepted by commercial banks, they are called commercial bills. The bank discount this bill by keeping a certain margin and credits the proceeds. Banks, when in need of money, can also get such bills rediscounted by financial institutions such as LIC, UTI, GIC, ICICI and IRBI. The maturity period of the bills varies from 30 days, 60 days or 90 days, depending on the credit extended in the industry.