What is a promissory note discount? We explain it to you

Promissory notes are a term we know in many ways, whether through movies, games, or, as business owners, as a mention in banks themselves. However, this term has been around since the Middle Ages, created as an ancient payment system to prevent payers from having to carry cash over long distances where they might encounter bandits.

Despite this term being born under this concept, today it is a common method of payment, especially used in the construction sector. Of course, over time, this term has evolved to give rise to the term “promissory note discount”. What does promissory note discount mean, and what is it for?

What is promissory note discounting?

Promissory note discounting means that a company holding a promissory note, instead of having to wait until the maturity date, can sell it to a financial institution that advances the amount.

Due to this advance, a fee is deducted. Given its ease, it has become a common way of short-term financing. However, how does promissory note discounting work?

The promissory note discounting process begins with delivering the note to the financial institution or crowdlending platform. This entity performs an analysis of the note and ensures that it meets all the requirements.

Once these details are confirmed, the value of the promissory note is transferred, minus applicable interest and fees. On platforms like Inversa, we simplify the entire process quickly and transparently to ensure comfort and clarify all the information that needs to be communicated.

Types of promissory notes and how to choose the most suitable one

When talking about promissory notes, it is important to highlight that there are different types depending on the issuer, the payment method, or the timing of the payment. Therefore, they are divided as follows:

Promissory notes by issuer

• Bank-issued promissory note - These promissory notes are provided by the bank in the form of a booklet. In this case, the banking institution prints the notes and delivers them to the applicant.
• Corporate or company promissory note - In this case, a company issues the promissory note and sets requirements that the recipient must meet to benefit from the payment.

Promissory notes by payment method

• Account deposit promissory note - When “account deposit” is mentioned, payment can only be made by depositing it into a bank account.
• Crossed promissory note - This promissory note has two parallel lines crossing the document, similar to a crossed check, with the same conditions. The crossing on a promissory note indicates that payment must be made by depositing it into a bank account and not in cash.

Promissory notes by payment timing

• Immediate promissory note - In this case, they are settled at the moment the promissory note is presented for payment.
• Variable-term promissory note - A period is added, and the maturity date is calculated after its issuance.
• Fixed-date promissory note - This promissory note establishes the exact date when the document expires.
• Indefinite promissory note - This is similar to the immediate one, but with no specific maturity date. It is completed when it is to be collected.
• Bearer promissory note - Similar to transferable promissory notes, but without the beneficiary's name written on it. Additionally, these can be transferred to third parties.
• Transferable promissory note - A type of promissory note that can be transferred to a third party who acquires the right to collect.

Given the wide variety of promissory notes, it is important to review your financial situation and choose the one that best fits your needs.

Advantages of promissory note discounting to improve your business liquidity

The main benefit of promissory note discounting is the immediate improvement of liquidity. This is because by advancing the collection of promissory notes, businesses obtain the capital needed for their operations, without resorting to traditional loans.

This is especially useful in businesses with high volumes of credit sales.

Moreover, the cash advance allows companies to access capital more quickly, thus maintaining a healthy cash flow. This is a vital move in industries with long payment cycles, where funds are needed before customers pay their debts.

However, it should be noted that, in many cases, promissory note discounting is compared to factoring, which is another form of short-term financing. However, it is important to emphasize that promissory note discounting is usually more agile and flexible. This is why it has an advantage over bank loans and lines of credit, which can be more expensive and come with higher collateral requirements.

What is the process for discounting a promissory note?

1. First, the company receives the promissory note from its client.
2. Next, the company delivers the promissory note to a financial institution.
3. The institution checks the validity of the document and the debtor's solvency.
4. If approved, the amount is advanced, deducting the applicable fees.

The discounting period can vary, but in general, once the operation is approved, the money is transferred within a short period of time. The fees depend on the payer's risk and the promissory note's maturity period.

Requirements and documentation needed to discount a promissory note

To access promissory note discounting, the company must submit the following documents:

• The promissory note
• Contract that supports it
• Company tax data

In addition to these documents, the financial institution will assess the payer's solvency to ensure that the promissory note will be paid at its maturity. At Inversa, we make this process more flexible and accessible than in traditional banking.

How promissory note discounting can help your company in the short term

Companies in sectors such as transportation, construction, or distribution often use promissory note discounting to ensure their liquidity. This system allows them to cover their financial needs without increasing their debt through traditional loans.

Sectors that handle large volumes of installment payments or work with solvent long-term clients are the main users of promissory note discounting. At Inversa, we have seen a growing demand for this service in the industrial and commercial sectors.

To maximize the benefit of promissory note discounting, companies should carefully evaluate the conditions of financial institutions and ensure that the discounting cost does not erode their profit margin.

Discount your promissory notes with ease: Take a step toward better business liquidity

Promissory note discounting is a key tool to improve your business liquidity without complications. If you're looking for a simple and fast way to finance your operations, at Inversa, we offer tailored solutions, with an agile and transparent process.

Request a free evaluation! Find out how we can help optimize your company's cash flow.