This sounds like discounting a Bill of Exchange. Although the Bill of Exchange is drawn only against the delivery of a physical good, so this may be the differe

This sounds like discounting a Bill of Exchange. Although the Bill of Exchange is drawn only against the delivery of a physical good, so this may be the difference between the two. For example, let's say I own a sheep farm. I hire people to trim the sheep, and they produce a bunch of cotton. Without the Bill of Exchange, if I want to pay the people I've hired then I will need to ship this cotton to the spinner, who then ships the spun cotton to the weaver, who then ships the woven cotton to the clothier, who then makes clothes and sells it to a consumer. Only after this has happened can I pay my employees with the money of the paying consumer. With the Bill of Exchange, a bill is created when I deliver cotton to the spinner. This bill will require the spinner to pay me for the cotton delivered in e.g. three months. I can then take this bill to someone who trusts that the spinner will pay me in three months and ask them to buy the bill at a discount, such that they are paid in three months (when the bill expires). I can then use the proceeds from the sale of the bill to pay my employees immediately. And the buyer of the bill earns a bit of interest because he pays less for the bill than he is paid at maturity. [1] https://professorfekete.com/articles/AEFMonEcon101Lecture5.pdf https://professorfekete.com/articles/AEFMonEcon101Lecture5.p... [2] https://professorfekete.com/articles/AEFMonEcon101Lecture6.pdf https://professorfekete.com/articles/AEFMonEcon101Lecture6.p...