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Bills Co-acceptance Facility

Chapter 5 : Fee-Based Corporate Financial Services. Bills Co-acceptance Facility. Introduction. BCF is another form of deferred payment guarantee

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Bills Co-acceptance Facility

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  1. Chapter 5 : Fee-Based Corporate Financial Services Bills Co-acceptance Facility

  2. Introduction • BCF is another form of deferred payment guarantee • In the case of DPG the beneficiary has to put up claim against the bank whereas in the case of BCF, the bank is signing a set of bills which can be presented on due date and get payment • BCF is a substitute for term loans to finance capital equipments • Term loans involve cash margin whereas BCF does not have cash margin requirements • BCF is a part of buyer’s credit scheme where the buyer sign the bills together with his bankers which the seller can discount with his bank to get immediate payment • BCF is a non-fund based line of credit • The banks obtain counter-guarantee to sign the bills • Banks charge commission for the services • Banks also insist collateral securities to cover the liability under the BCF

  3. Advantages • Cheaper finance for large value equipment • Bank’s funds are not involved • Simple process • A sales promotion measure to manufacturers • BCF provides security and liquidity to the seller

  4. Disadvantages • Financial standing of the co-accepting bank • The Validity of the signatures of officials of the bank on the bills • Banks may put forward restrictive covenants • Bills attract stamp duty • Can be used for drawing accommodation bills on associate/sister concerns

  5. Irregularities in Co-acceptance of Bills • Customers draw accommodation bills on their associate/sister concerns and defaults payment • Difficulty in ascertaining the co-acceptance liabilities because of not recording the particulars of bills co-accepted in the books of banks.

  6. Precautions & Safeguards • Need for BCF should be ascertained • BCF should be extended only to customers enjoying other credit facilities with the bank • Only genuine trade bills should be accepted • Verify the valuation of goods as mentioned in the accompanying invoice • House bills/ accommodation bills accepted by group concerns should not be accepted • Signature of two officials should be insisted for co-accepting bills above a specified limit • Customerwise records of bills co-accepted should be maintained and produced before the internal inspectors for verification • Controlling office should collect information about the bills co-accepted through periodical returns.

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