Discounting (escompte bancaire) is probably the oldest credit operation practised by French banks. It predates the Code monetaire et financier and even the Code de commerce, yet remains a discreet but essential mechanism for business financing. Discreet, because no business leader boasts about it. Essential, because it solves a universal problem: the gap between the moment an invoice is issued and the moment it is paid.
A clarification of vocabulary first. The French word “escompte” is polysemous. Three meanings coexist. Bank discounting (escompte bancaire) – our subject – is a credit operation by which a banker advances the amount of a negotiable instrument to its client, deducting interest and fees. Trade discount (escompte de reglement) is a price reduction a supplier grants for early payment – no bank intervenes. Discount rate (taux d’escompte) is a central bank policy concept now largely obsolete since the ECB’s advent.
What is bank discounting?
The law does not define discounting. Practice, doctrine and case law fix its contours. Discounting is the credit operation by which a client, holder of a term receivable, remits a negotiable instrument to a banker who immediately pays its amount, deducting interest to maturity and a commission.
Two legal particularities distinguish it. First, discounting is not a simple loan: the bank becomes owner of the instrument and the receivable it incorporates. Second, it is not disguised collection: the bank advances funds immediately without awaiting recovery. This immediate availability is the qualifying criterion (Cass. com., 6 November 1984, no. 83-12.053).
The practical stakes are significant. If the operation qualifies as discounting, the bank becomes owner of the receivable from remittance, with extensive rights even in insolvency. If recharacterised as collection, the bank is merely a mandatary: advanced funds become a restitution claim subject to proof of debt.
The mechanism: three actors, a convention, an endorsement
A discounting operation involves three persons: the drawer (supplier holding the receivable), the drawee (debtor), and the discounting banker who advances funds and holds the instrument until payment. The relationship is governed by a discounting convention fixing the ceiling, pricing conditions, acceptable instruments and the bank’s right of refusal.
The central legal act is the endorsement of the instrument. The client endorses the bill of exchange or promissory note to its bank’s order. Endorsement transfers the instrument under Article L. 511-8 of the Code de commerce, making the bank a legitimate holder via an unbroken chain of endorsements (Article L. 511-11). This quality triggers two cardinal effects: access to all cambiaire remedies against all signatories (solidarily liable) and the benefit of the rule of non-opposability of defences.
Article L. 511-12 of the Code de commerce
“Persons sued under the bill of exchange may not oppose to the holder defences based on their personal relationships with the drawer or prior holders, unless the holder, in acquiring the bill, acted knowingly to the detriment of the debtor.”
This rule is the most powerful in cambiaire law: if the accepted drawee refuses to pay at maturity invoking a dispute over delivered goods, it cannot raise this defence against the bank holder. The bank accepted the instrument on the faith of the title itself.
Discountable instruments
Bills of exchange (lettres de change) are the historical discounting instrument, governed by Articles L. 511-1 et seq. of the Code de commerce, with strict formal requirements. Promissory notes (billets a ordre) are the simplified variant. Cheques are theoretically discountable but rarely so in practice. Dailly bordereaux (Articles L. 313-23 et seq. CMF) are the close cousin – doctrine has long debated whether discounting rules apply en bloc; the answer is pragmatic: many rules transpose, but the Dailly retains its own regime.
Cost calculation
The standard formula: Discount = (Amount x Rate x Days) / 360. The division by 360 (Lombard convention) slightly inflates cost versus civil year calculation but is accepted for professional credit. To this are added endorsement commission, handling commission, and sometimes non-usage commission. The true cost emerges only from calculating the effective global rate integrating all elements.
The usury ceiling no longer applies to credit granted to professionals since 2003. A bank may therefore charge a rate exceeding the usury threshold to a business. This does not give carte blanche: manifestly excessive rates may constitute anti-competitive practice or abuse of dependence.
The discounting bank’s position: owner and legitimate holder
The bank becomes owner of the provision (the receivable the instrument incorporates) and legitimate holder of the cambiaire title. These two qualities give it an exceptionally strong position. If a third-party creditor attaches the remitter’s current account, the attachment cannot absorb already-endorsed instruments because they no longer belong to the remitter.
Outcome: payment or non-payment at maturity
When the drawee pays at maturity, the operation unwinds without friction.
When the drawee does not pay, the bank has three cumulative remedies:
Cambiaire remedy: Protest for non-payment, then action against any co-signatory (drawer, accepted drawees, prior endorsers, guarantors) held solidarily. Short limitation: three years against the accepted drawee, one year against drawer and endorsers.
Contractual remedy: Under the discounting convention’s “sauf bonne fin” clause, the remitter must reimburse the advance.
Counter-entry (contre-passation): The bank debits the remitter’s current account. This is the most-used remedy but its regime pivots on the remitter’s status: if in bonis, counter-entry constitutes payment and extinguishes the bank’s rights on the instrument; if in insolvency proceedings, counter-entry does not constitute payment and the bank retains the instrument and its remedies (Cass. com., 15 November 1977; 8 October 2002; 11 June 2014).
Pitfalls to know
Accommodation bills: Bills drawn without real cause solely to procure credit through discounting. The practice is null for lack of cause and exposes authors to criminal sanctions (fraud: Cass. crim., 4 April 2012; bankruptcy by ruinous means: Cass. crim., 8 January 2014).
Knowledge of lack of provision: The non-opposability principle falls away if the bank acted knowingly to the debtor’s detriment (Cass. com., 18 January 2011).
Duty of information: The discounting bank must promptly inform the remitter of non-payment, refusal to discount, or re-discounting after counter-entry. Failure engages liability.
Discounting, Dailly assignment, factoring: which to choose?
For a business managing few high-value receivables with well-identified clients, discounting remains simplest. For regular high-volume small receivables, the Dailly bordereau is more suitable. For businesses wanting to outsource receivables management and discharge collection risk, factoring is the natural path at higher cost. Many businesses combine all three. A key difference: discounting always gives the bank recourse (except for rare express waiver); factoring “without recourse” transfers the insolvency risk to the factor.
Solent Avocats acts alongside credit institutions and remitting businesses in discounting disputes, counter-entry challenges, cambiaire remedies and bank liability claims. See our banking law guide for the broader context.