Finance

What is the difference between discount and cashout?

The discount is a common operation at the company level. It allows them to always have free cash.

What is a discount?

The discount is a financial operation to obtain cash. It involves 3 parties, including: the beneficiary company or transferor, the debtor of the bill of exchange or the transferee, and the banker or assignee. It is possible to opt for a bank discount or a commercial discount.

The bank discount

This approach is aimed at VSEs and SMEs in all sectors of activity. Discounting makes it possible to obtain financing from a banking institution after the analysis and validation of the risk of the expected effects. Specifically, the bank discount aims to assign a bill of exchange (promissory note, bill of exchange, .) to a bank in exchange for an immediate cash advance. Funding is allocated without waiting for the customer’s settlement deadline being necessary. In this way, the final cost is equivalent to the amount of the duty-free claim deducted from the banker’s commission.

In terms of bank discount, the company remains the guarantor of the payment of claims, but the bank becomes the owner of the bills of exchange. The modification or termination of a discount granted is done with 60 days’ notice, by the banking institution so that the transferor can have time to find a solution.

The commercial discount

This is a commercial technique that allows the customer to be given a discount during an advance payment. The commercial discount should not be confused with a discount or price discount without discount conditions. Indeed, after a certain time, the discount rate decreases.

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Commercial discount or settlement discount is a long-term customer loyalty technique. It avoids late bill payments and optimizes the company’s cash flow. The percentage of commercial discount decreases according to the anticipated settlement period. For example, if payment is made within 10 days of the invoice, the customer receives a 4% discount. If it is only made after 20 days, the discount for advance payment can increase to 2% and so on.

No law imposes the commercial discount agreement on an advance payment. Nevertheless, the invoice must include clear statements and applicable conditions if the customer decides to discount. The details of an invoice discount must remain clear for each party.

What is the difference between cashout and discount?

Collection and discount are two very distinct processes. The collection makes it possible to obtain the money of a commercial paper from a banking institution after the due date mentioned on the draft. The time limit for filing commercial paper varies from one bank to another in order to obtain accreditation on time. As for the discount, it allows you to obtain immediate credit without waiting for the due date. Funding is done in the short term. The banker in charge of the file advances the total amount after a calculation of the days of use and interest. In principle, the bank interest rate is 1 to 5%.

The offer of the refinancer

Refinancing companies often try to lure you by claiming that your monthly payment will actually decrease after Commercial Cash Out Refinance. It’s always too good to be true. What lenders do is increase your payments so that your payments can actually be lower in the first year or so. But if you look at years 5 to 10 of your loan, you will find that you pay much more than you expected. You do this because they know exactly that you will not be able to pay the high installments for the mortgage later, and that you have only one option, namely to return to them and refinance them again. Instead, you should opt for a mortgage with a fixed interest rate. If you had a fixed interest rate of 8% for 15 years before the cash out, 20 years with a fixed interest rate of 8% is not bad. It is important that you do not receive cash-out for nothing when refinancing cash-out. You lose equity in your house, and you have to pay for that. The most important thing when making lemonade is that you are aware of how you pay for it and that you make the repayment responsible and sustainable.

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