Question

What are the advantages of a bank-accepted commercial bill compared to other forms of short term business financial to the following parties:

i) the borrower

ii) the bank

Answer 1

Commercial bill is a bill of exchange issued by an organization to raise money to finance its short term needs. It is issued by the seller to the buyer for the amount of goods delivered by him. These bills are of 30 days, 60 days and 90 days maturity.

Advantages of commercial bills to the borrower:-

- It is relatively cheaper as compared to bank loans

- It provides and exit option to the investors to quit their investments as they are highly liquid

- It provides a wide range of maturity to choose

Advantages of commercial bills to the bank:-

- Working capital can be raised quickly and in a cost effective manner

- No lien is created on assets as commercial

- The bank earns a high quick yield

- Incase the bills are dishonored, the legal remedy is simple.