Discounting a cheque: what a future payment is worth today

The idea

When a business needs cash before a cheque or promissory note is due, a bank or buyer may pay for it now at a discount. The discount is the cost of receiving the money early.

The simple discount formula

discount = face value × annual discount rate × (months ÷ 12)
amount paid now = face value − discount

Worked example

A cheque for 100,000,000 Toman, due in 3 months, discounted at 24% a year (an example rate):

• Discount: 100,000,000 × 0.24 × 3 ÷ 12 = 6,000,000 Toman
• Paid now: 94,000,000 Toman

Watch for

• Risk: if the cheque bounces, the person who discounted it may have to repay.
• Fees: banks may add fees on top of the discount.
• The real rate: because you receive less than the face value, the effective interest rate is slightly higher than the quoted discount rate.

Tools for this

• Cheque and note discount

Examples use illustrative rates. Check the terms and your legal obligations before discounting a cheque.