Definition of note receivable discounted

discounted proceeds from a note, received by the holder of a customer's note, from a third party, usually a bank or finance company, prior to its maturity date. The proceeds received by the holder equal the maturity value less the bank discount (interest charge). The bank discount is based upon (1) the time period the bank will be holding the note and (2) the note's interest rate. The interest rate charged by the bank is usually higher than the interest rate on the note. The maturity value of the note equals the face value of the note plus interest. The bank discount equals the maturity value times the discount rate times the period the note is held by the bank. The net proceeds received by the payee at the time of discounting equals the maturity value less the bank discount. Note that notes receivable discounted represents a contingent liability to be footnoted.