Final answer:
Commercial bill financing is a short-term funding mechanism where a bank, acting as a drawee, guarantees the payment of a bill issued by a corporation, the drawer, to the payee or holder. This form of financing is often used in international trade and the bank's acceptance adds credibility, allowing the drawer to sell the bill before maturity.
Step-by-step explanation:
Commercial Bill Financing Explanation:
As a lending manager at Mega Bank, the structure of a bank-accepted bill facility can be described as follows:
Commercial bill financing is a type of short-term financing that corporations use to manage their cash flow and meet immediate funding needs. A bank-accepted bill, also known as a banker's acceptance, is a promise of payment at a future date which the bank guarantees. this financing tool is commonly used in trade, especially in international commerce.
The parties involved include:
- The drawer, who is the entity that issues the bill and is responsible for the payment of the amount on the due date.
- The drawee, typically a financial institution like Mega Bank, which accepts the bill and guarantees payment, adding credibility and allowing the drawer to sell the bill at a discount in the money market.
- The payee or holder, who is the person or entity that holds the bill and will receive the payment when the bill matures.
The process involves the drawer drafting the bill, the drawee accepting and guaranteeing it, and the payee holding it until maturity or selling it to another party.