This topic describes discounting, collection, and forfaiting.

Bills of exchange are a form of short term financing. Your customer pays an invoice using a bill of exchange transaction and is therefore able to extend his or her payment period (for example, by three months). You can then discount the bill of exchange. That is, you can transfer it to another party (bill of exchange usage).

You can transfer the bill of exchange prior to its maturity to a bank for refinancing (discounting). The bank purchases the bill of exchange from you. Since the bank will receive the amount at the date of maturity, it will charge interest (discount) for the period from receiving the bill of exchange to the maturity. The bank may also charge fees.

If you do not discount the bill of exchange, you will either present it to your customer for payment at maturity yourself or transfer it before maturity to a bank that will present it for collection. The bank will charge a service fee for the collection.

You can also transfer the bill of exchange to a third party such as a vendor in settlement of your account payable (means of payment). The bill is transferred by endorsement (on the back of the to-the-order instrument).

In foreign trade, bills of exchange are often bought (forfaiting). With this option, the seller of the bill of exchange can eliminate his or her exposure to recourse.

If you transfer a bill of exchange to a bank, the system supports you in two different ways:

• You can create a presentation list for your bank. The system automatically posts the bill of exchange usage. This procedure is necessary for bills of exchange prior to the maturity, for example, in Italy, Spain and France.

• You can present the bill of exchange to your bank and manually post the bill of exchange usage.

In the general ledger, the bill of exchange liability for the bill of exchange receivables is managed in separate G/L accounts and in the customer account.

After the due date and the country-specific time period for protesting the bill of exchange have passed, you can eliminate the bill of exchange liability. A recourse liability then no longer exists for you. There has to be a bill of exchange protest in order for the last bill holder to be able to make use of his or her right of recourse and present the bill for payment to one of the parties involved in the bill of exchange. With the bill of exchange protest, a notarization will be obtained stating that the drawee has not paid the bill.

When a bill of exchange is accepted, you will incur costs that the customer will have to pay if the bill of exchange is due after the invoice. The customer is already debited bill of exchange charges when you post the bill of exchange payment. These charges include, for example, discount and collection fees. You can enter the charges or have the system automatically calculate them when you post the bill of exchange. There are a number of combinations you can choose from for the specified bill of exchange charges. The customer is automatically charged the bill fees. Bill of exchange charges are usually due net. If you need special payment terms for these charges, you can store them in the master record of the business partner.

In some countries, bills of exchange have to be recorded in a bill of exchange journal. The bill of exchange journal is a subledger that contains all necessary information about bills of exchange receivables, for example, the maturity date of the bill and the name and address of the borrower.

In the system, you can differentiate between bills of exchange that are eligible for rediscount with the Bundesbank and those that are not. Bills that are eligible for rediscount with the Bundesbank must meet country-specific conditions that allow a commercial bank to transfer the bill to the Bundesbank for refinancing. In Germany, for example, the following conditions must be met:

• The bill of exchange must be signed by three authorized persons.

• The time left until the maturity date cannot exceed three months.

• The bill of exchange must be payable at a location where the Bundesbank has a branch.

A commercial bank cannot transfer bills ineligible for rediscount with the Bundesbank to the Bundesbank for refinancing. By differentiating these bills of exchange when you enter them into the system, you are able to report them separately on the balance sheet. You use the special general ledger indicator you enter during document entry to specify the type of bill of exchange. If the status of the bill of exchange changes, you will have to make transfer postings before the balance sheet is created. For example, a bill that is ineligible for rediscount with the Bundesbank becomes eligible if the time remaining until maturity changes.

If bills of exchange do not have to be differentiated in your country, you will post them using the same special general ledger indicator.