Invoice loans from commercial banks: functions, accounting. Bill credit is …
The invoice is considered one of the most important instruments of credit and settlement transactions. Its appearance is associated with the need to transfer money from one region to another and to exchange coins for foreign currency. After reading today’s article, you will understand the main features of the invoice loan.
The main concepts
It is understood that the invoice implies a special type of company securities. They can be sold to legal or natural persons in the future. Such operations allow the issuing company to receive the missing amount of money.
Every invoice has a precisely defined return period. This means that the holder of the securities can request that they be exchanged for previously invested funds before a specified period of time has expired. In addition, such operations involve the payment of cash premiums. At its core, a bill of exchange is nothing more than a kind of buy and sell transaction. The interest rate on the loan depends on the term of the securities. In addition, the agreement entered into for such lending contains all the information about when the debt will be fully repaid.
Types of bills
So far, there are two main types of papers. A promissory note is a document that contains the obligation to return the specified amount of money within a specified period. Transferable means a refund in favor of a specific third party.
The period for which the registration is made and the issue of securities largely depends on the agreements between the borrower and the lender. Usually this period varies between three and twelve months. Long-term invoices are issued for more than a year.
It should be noted that the conditions under which promissory note loans are more profitable than traditional cash advances. The main characteristics are such short term loans. As a rule, the repayment period is no more than one year.
Even before the loan period of the agreement expires, the borrower must transfer the commission and a cash payment of the securities received to the bank. In addition, all of these payments are made at the same time.
The amount of the loan loan commission does not depend on how the amount of the loan has changed over the entire term. In this case, the loan is not fully repaid.
In accordance with the agreement concluded when such a loan was executed, the repayment date of the loan does not match the repayment date of the invoice. This should happen a little earlier.
All bills exist today Loans are divided into two main groups. The first includes holders, including accounting and collateral. They are accepted by banking institutions at the customer, in whose function there is a legal person who spends a certain amount in return. The second category includes promissory note loans where securities serve as collateral.
Legal entities that have passed all the prescribed banking procedures receive a loan to buy an invoice. With this certainty, the company pays for the products sold with its supplier.
After the sale of the goods and receipt of the funds, the legal person returns the amount previously paid, along with the interest charged on it, to the bank.
The latter is entitled to offset against his counterparties using an invoice that remains the property of the supplier. He can also return securities to the bank and receive a certain amount in return.
Accounting for the bank’s invoice loans means that the borrower transfers the securities to them by note before the due date for payment and receives a fixed amount minus a certain percentage, called a cash discount, in return.
The existence of such loans is positive and affects the state of the financial and economic system. One of the main advantages of commercial bank bills of exchange is that making loans cheaper and increasing deferrals creates opportunities for a significant increase in purchasing volume.
Companies that use securities for settlement With their suppliers, the right to a VAT refund for products received is granted. In addition, such transactions can minimize the risk of non-payment, as all liability for invoices is transferred to the bank that bought them. Such a loan is usually registered using a simplified procedure.
It is also important that the mutual agreements are made. With highly liquid invoices, they can significantly lower the interest rate on commercial loans provided by product providers. This is because such securities can be equated with cash.
Despite all of the advantages mentioned above, bill of exchange loans have several significant disadvantages. So far there are a number of objective reasons that reduce the popularity of this financial instrument. Initially, such loans are associated with significant financial costs for the borrower. It goes without saying that the customer loses his own money not only due to discounts, but also due to accrued bank interest.
As for the creditor firm, the issue of such a loan also implies the presence of a significant number of negative factors. The main problem is the occurrence of risk situations that lead to protests against securities and large amounts of money that have been legally reserved. Despite all the shortcomings that exist with invoice loans, this financial instrument should not be abandoned entirely. This is especially true in situations where there are invoice elements that are characterized by a high level of activity.