Differences Between Financial and Commercial Discounts
To explain the differences between the two concepts, let’s first remember the term discount. It consists of the advancement of an amount of money specified in a title (for example, a bill of exchange or a promissory note) before the expiration date specified in that document.
During this process, there is a discount on the total amount in favor of the financial entity advancing that money. Beyond the technicalities, let’s present a practical case. The company “Talleres A” has a debt with “Recambios B” after acquiring a series of spare parts for its workshop. “Talleres A” decides to pay the amount owed for the products purchased through a promissory note within a 60-day expiration period.
In other words, Company A agrees to pay B the amount it owes in sixty days. For its part, “Recambios B” decides to go to a financial institution to advance the money from that promissory note, in exchange for an amount, as compensation for acquiring collection rights that cannot be executed for another sixty days.
This would be the definition and explanation of the discount process. Its advantages are clear. “Recambios B” can count on your money quickly without waiting for the expiration date. This provides total liquidity for the day-to-day of this organization, which will not see its cash balance compromised.
When we talk about a financial discount, we refer to a type of loan formalized by the person who receives bills or promissory notes. In these cases, the party obliged to pay must do so to the financial institution with which the borrower has formalized the loan.
Within the financial discount, we find the economic effects, which are credits for a maximum of six months, in which the discount rate is higher.
On the other hand, we have financial discounts with a clearing account. It has an even higher cost because interest is applied to the total amount of the loan. We also find the certification discount within the different financial discounts, a practically exclusive operation in public works contracts. In this case, the payments of the amounts owed by the Administration are made based on the presentation of the certificates that recognize their future execution.
On the other hand, we have a commercial discount that differs from the previous one in that it is carried out by companies to advance the collection of commercial bills, promissory notes, bills, or other titles that are issued and accepted by a financial institution.
They are not a loan or credit grants as such, with a specific term. It is an advance of money from a financial institution to the company or self-employed person who receives a promissory note or similar title with a later expiration date.
Both in the commercial discount and in the financial discount, we find a series of common advantages. In the first place, the ease of accessing this type of financing. In principle, compared to other financial tools, it is a reasonably fast process accelerated by simply presenting the title or payment document received.
There is also no expiration as such. In fact, this is the key to this type of operation: ending the expiration date so that the company can count on the money owed to it as soon as possible. In addition, no unique guarantees are required. The presentation of the effect is enough.