Promissory notes of commercial banks: features, accounting. Bill of Exchange is ...

A bill is considered one of the main instruments of credit and settlement operations. His appearance is associated with the emergence of 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 a promissory note.

The most important concepts

It should be understood that a promissory note implies a special type of securities issued by an enterprise. In the future, they can be sold to legal entities or individuals. Such operations allow the issuing company to receive the missing amount of money.

Each bill has a strictly defined period of return. This means that the owner of the securities can demand in advance the agreed time for their exchange for previously invested funds. In addition, such operations provide for the payment of monetary compensation. At its very core, a bill loan is nothing more than a kind of sale-purchase transaction. The interest rate on the loan is correlated with the maturity of the securities. In addition, the agreement concluded with such a loan, contains all information on the timing of full repayment of debt.

Types of bills

To date, there are two main types of such papers. A simple bill is a document containing a demand to return the specified sum of money in strictly stipulated terms. A transferable means repayment of funds in favor of a certain third party.

The period for issuing and issuing securities depends largely on the arrangements between the borrower and the creditor. Usually this period varies from three to twelve months. Long-term bills are issued for more than a year.

Key Features

It should be noted that the conditions under which loan bills are issued are more profitable compared to standard monetary loans. The main features are the short duration of such loans. Usually their maturity does not exceed one year.

Also, even before the end of the loan agreement, the borrower must transfer to the bank a commission and monetary compensation on the received securities. In addition, all these payments are made at a time.

The amount of commission on a promissory note does not depend on how the value of the loan has changed throughout the term. In other words, in this case there is no depreciation of the loan.

According to the agreement concluded when making such a loan, the date of repayment of the loan does not coincide with the day of payment of the bill. This should happen a little earlier.

Mechanism of registration

All existing promissory note loans are divided into two main groups. The first includes bearer, including accounting and collateral. They are accepted by banking institutions from the client, in whose role the legal entity acts, giving out in exchange a certain amount. The second includes promissory notes, under which securities are used as collateral.

Legal entities that have passed all procedures provided by the bank receive a loan to purchase a bill. With the help of this security, the company pays for its products with the supplier.

After the sale of the goods and the receipt of funds, the legal entity returns the previously taken amount to the bank together with the interest accrued on it.

With the help of a bill remaining in the property of the supplier, the latter has the right to settle accounts with its counterparties. Also, he can return the securities to the bank and get a certain amount for them.

Accounting for bank loans consists in the fact that the borrower transfers the securities by endorsement before the payment date on them and receives in return a fixed amount minus a certain percentage, called a discount.

Benefits

The existence of such loans positively affects the state of the financial and economic system. One of the main advantages enjoyed by commercial banks' promissory notes is the availability of opportunities for a significant increase in the volume of goods purchased at the expense of a cheaper loan and an increase in the deferral of payments.

Companies using securities for settlement with their suppliers are entitled to a VAT refund on the products received. In addition, such transactions allow minimizing the risk of non-payments, since all responsibility for promissory notes is transferred to the banking institution that bought it. The execution of such a loan, as a rule, is carried out by a simplified procedure.

It is also important that mutual settlements made with the use of highly liquid bills make it possible to significantly reduce the interest rate for commercial loans provided by suppliers of products. This is because such securities can be equated to cash.

disadvantages

Despite all the above advantages, promissory notes have several significant disadvantages. To date, there are a number of objective reasons that reduce the popularity of this financial instrument. Initially, such loans involve significant financial costs on the part of the borrower. It should be understood that the customer loses his own funds not only because of the discount, but at the expense of accrued bank interest.

As for the creditor company, the issuance of such a loan also implies the presence of a considerable number of negative factors. The main of them is considered the emergence of risky situations, leading to protests of securities and large sums of money that were legally reserved. But, despite all the shortcomings that promissory notes have, you should not at all give up this financial instrument. This is especially true in those situations when it comes to bills of exchange, characterized by a high degree of activity.