A line of discounts is a financial product that is specially designed to finance both small and medium-sized companies and self-employed workers and that is characterized above all by the high liquidity it provides to their savings accounts. Not surprisingly, it is money that is available to you in banks for a limited period of time in terms of terms. This period is established and fixed in each operation and is what determines its difference compared to other models with similar characteristics.
To analyze the discount line, it is necessary to take into account that your payments are made after the due date. Its most important objective is that companies can be financed in the short term before the problems that may develop in their business accounts. Within this general context, there is no doubt that the discount line can be understood as one of the most effective products to come from the banking system. Among other reasons of special relevance because the risk in the operation is much more controlled in other payment formats.
On the other hand, and from a practical point of view, there are many aspects for which users benefit from its use. First of all, they will not have to wait 6 or 10 months as are the maturities that they have the promissory notes to collect money owed by creditors, customers or other people. Simply because, after all, they cannot go that long without collecting the amount owed. Well, with the discount line they are in perfect condition advance these charges. So that in this way, they can have it immediately in their company or checking account.
Another aspect that must be assessed is the one that has to do with the expenses that must be incurred in relation to its issuance. Because it is true, it is not a free product, but rather, on the contrary, it entails a series of commissions and expenses in its management. To the point that the disbursement can be close to 0,85% of the amount of the operation. In this sense, there will be no choice but to make calculations to verify whether or not it will be worth formalizing a discount line. In most cases based on the accounts presented by small and medium-sized companies or self-employed workers.
No less important is to know the interest rate that is applied in these operations. Where it is calculated on taking into account the difference of days that exist between the due date of the invoice and that of the discount line itself. With a system implemented that is governed because as the terms are longer, more money will have to be paid in advance of these charges. At an indicative level, the commissions move in a range that goes from 0,50% to 2%, depending on the financial institution with which this financial product is contracted. In any case, you should know that it does not imply a fixed disbursement, but on the contrary, it is variable.
What is a discount line?
In any case, another of the points where it is necessary to influence is that one of the reasons for opting for the discount line is based on the fact that it allows its holders do not suffer financially. That is, to pay workers, comply with tax obligations or simply face an unforeseen expense. Because the discount line is characterized above all because it has the purpose of covering commercial discount demands with full guarantees.
This financing method is easier to formalize compared to other products with similar characteristics and with the additional advantage that it is applied from a single accounting movement. While on the other hand, applies an interest rate It can be presented in a double modality. On the one hand, with fixed interest so that their claimants can better plan their expenses. And on the other hand, variable and that will depend on the time remaining until its expiration date arrives.
In any case, it must be taken into account for its formalization that the amount of this product has no book value. If not on the contrary, the sources that are receptive to this monetary movement are the titles that are anticipated and the expenses generated from the operation itself. Also, you cannot forget that this is a very common product that is aimed at companies that have commercial purposes. For example, those linked to your commercial activity and in a certain way to collection rights.
His sense of being is based on the fact that his accounting does not suffer from the delay in collections. This is an operation that is very common in companies that sell all kinds of products, services or articles. Where are punctual needs to pay money to suppliers, workers and other agents that are part of this business process. To the point that in many cases the discount line can ultimately become the last resort that small and medium-sized businesses can turn to.
How does a discount line work?
Fundamentally so that the accounting of the companies does not resent the delay in collections and that can affect them to have certain problems to pay their workers' payroll, pay taxes or even undertake a more expansive business strategy. As for example, in the expansion of the business or in undertaking an expansion of it. It is a product that works in a very particular way, after all, it will be the bank itself that accepts it because it will be in charge of anticipating the amount of the operation. Where the payment terms is one of the most notable elements for its execution.
While, on the other hand, we cannot forget that the discount line is a product that is based on a credit operation in which a bank or financial institution advances an amount of an unexpired credit that a company has with a third party. This can normally be a customer, supplier or even another company. But what is achieved with the discount line that other financial products do not have? Well, the following contributions that we present below:
- You save more time because a maximum loan is authorized that will be advanced to other people or companies. In other words, you gain days in the operation that help you with other accounting movements within the company.
- They are more flexible models since They do not have a maximum or minimum term. If not, on the contrary, it can be adapted to your needs. Although they move in margins that are between approximately 16 and 24 months.
- They are in a way more easy to manage since it will be the credit institution itself that is in charge of advancing the amount of the loan based on its expiration date.
- It is a relatively affordable financial resource for clients because interest rates are lower than in other forms of financing. In addition, you will always benefit from the fact that the price of money in the euro zone is at 0%.
- It constitutes a clear alternative to payment to third parties that is characterized by being a fast financing, although it may be more complex than in other models of the financial system.
Difference between credit policy and discount line
It is true that there are many similarities between both financial products, but establishing their own characteristics in each of them. For this reason it is not strange that you can confuse them at some point in your professional life. So that this scenario does not occur, it must be indicated that the main difference lies in the fact that the first one allows you to dispose of the money in an immediate way, without any expiration dates.
On the contrary, the discount line is a financial product that is used by some companies or freelancers to anticipate other documents. For example, bank promissory notes or bills of exchange, among some of the most relevant. With the objective that they reach the issuer before the expiration date. Another substantial difference is that the latter is formalized to obtain financing aimed at the short term. For a very simple reason to explain and understand: it is the bank itself that is in charge of anticipating the money that a company owes us.
While on the other hand, there is a very relevant aspect to consider and that is that credit policies are more similar to a loan in the traditional sense of the word. On the contrary, the discount line is not only limited to financing. On the contrary, it is a model that contemplates other more complex procedures in its concession and formalization.