Block Discounting Loan

Block discounting is a financing arrangement under which a lender advances funds against a portfolio of eligible receivables or instalment contracts. The legal structure, assignment mechanics, collection responsibilities, and recourse terms depend on the facility agreement.

Key Characteristics

• The facility covers a defined portfolio of eligible receivables or contracts.
• It provides liquidity against future customer payments.
• Credit assessment considers the originator, underlying debtors, portfolio quality, and concentration risk.
• The facility may be structured with or without recourse, subject to the agreement.
• The lender may require assignment of receivables and control over collection proceeds.

Common Structures

Structure	Description
Receivables-backed financing	Provides funding against an eligible receivables portfolio.
Instalment-contract financing	Provides funding against a pool of customer instalment contracts.
Bills discounting	Provides funding against eligible trade bills before maturity.
Receivables purchase	Transfers eligible receivables under agreed purchase and recourse terms.

Operational Workflow

1. Receive the proposed receivables portfolio and supporting data.
2. Assess the originator, underlying debtors, portfolio quality, and concentration risk.
3. Verify the eligibility of receivables and supporting contracts or invoices.
4. Determine the advance rate, pricing, reserves, and recourse terms.
5. Complete the facility documentation and any required assignment or security arrangements.
6. Disburse the approved amount in accordance with the facility terms.
7. Monitor collections, delinquencies, dilution, disputes, and settlement.

Example Calculation

Scenario: A lender discounts an eligible SGD 1,000,000 receivables portfolio for 90 days at an annual discount rate of 8%, using an ACT/365 day-count convention. This simplified example excludes fees, reserves, and credit adjustments.

$$\text{Discount amount} = 1{,}000{,}000 \times 0.08 \times \frac{90}{365} \approx \text{SGD }19{,}726.03$$ $$\text{Net proceeds} = 1{,}000{,}000 - 19{,}726.03 = \text{SGD }980{,}273.97$$

Compliance and Monitoring

• Track collections and perform receivables-ageing analysis.
• Monitor debtor and sector concentration risk.
• Assess portfolio quality, delinquency, and dilution regularly.
• Manage disputes, collections, and ineligible receivables in accordance with the facility terms.
• Report portfolio performance at the agreed frequency.
• Monitor applicable credit, concentration, and exposure limits under bank policy and regulatory requirements.

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