Escompté

Escompté is a French term that translates to "discounted" in English, most commonly used in a financial context. It refers to the process of deducting interest or a fee from the face value of a financial instrument before it is paid out. This typically applies to short-term debt instruments such as bills of exchange, promissory notes, or Treasury bills.

When a financial instrument is "escompté," the holder sells it to a third party, usually a bank or financial institution, for an amount less than its face value. The difference between the face value and the amount paid is the discount, which represents the interest or fee earned by the buyer for providing immediate liquidity to the seller. This practice is a way for businesses and individuals to access cash quickly before the maturity date of their receivables or short-term investments.

The process of escompte allows businesses to manage their cash flow more effectively, ensuring they have funds available for operational needs even if payment from a customer is due at a later date. The rate at which the instrument is discounted is known as the "taux d'escompte" or discount rate. This rate is influenced by market conditions, the creditworthiness of the issuer, and the remaining time until maturity. Escompte is a fundamental mechanism in money markets and trade finance.