Bill of Exchange | Characteristics of Bill of Exchange | Parties of a Bill of Exchange | Advantages of Bill of Exchange | Importance of Bill of Exchange | Negotiable Instruments
Bill of Exchange is an draft or instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a sum of money only to or to the order of a certain person or to the bearer of the instrument. Drawer, Drawee and Payee.are three parties to a bill of exchange. Drawer is the maker of the bill , Drawee is the person who ordered to pay and the person to whom or to whose order the money is directed to be paid called the payee. In some cases, drawer and payee may be one person. A bill of exchange is generally drawn by the creditor upon his/her debtor. It has to be accepted by the drawee or someone on his behalf. To be of real use, the bill of exchange must be accepted. The mere fact that a bill is drawn by one person upon another does not make the drawee liable for its value. The drawee must accept liability before he can made liable. The drawee usually accepts the bill by writing the word ‘accepted across the face of the bill, together with his signature. A bill of exchange after acceptance is known as an acceptance.
Characteristics of Bill of Exchange
- A bill of exchange is an instrument in writing.
- It is an order to make payment.
- It must be signed by the make or drawer. Unsigned document will not be legally valid.
- It contains an unconditional order. There is no condition attached to it.
- The order must be to pay money and only.
- The sun payable must be specific.
- The money must be payable to a definite person or his order or to the bearer.
- The amount must be paid within a stipulated time or on demand.
- The name of the drawee must be clearly mentioned in the document.
- It must be dated and stamped.
Parties to a Bill of Exchange
Drawer
The person who draws or writes the bill is called the drawer or maker. Drawer is the maker of the bill of exchange. The drawer must be the seller or creditor to whom money is
owing
Drawee
The drawee is the person on whom the bill is drawn. He is the purchaser or debtor who is ordered by the drawer to pay
the amount,
Payee
The person who has the right to receive the amount of the bill is called the payee. The payee may be a third person or drawer himself if he keeps the bill with him till the date of its payment
Parts of a Bill of Exchange
Date
This is the date on which the bill is drawn and is written at the top right hand corner of the bill. The date is important because the team of the period of the bill commences to run from this date.
Term
This is the period for which the bills are to run from the date of the bill. The term helps us in calculating the due date of the bill or the date of maturity. This is the date on which the amount of the bill becomes payable by the acceptor. Three extra days known as days of grace are allowed for payment beyond the date calculated according to the term of the bill. In the beginning three days of grace used to be allowed by custom of the trade. But now the law has made the allowance of the days of grace compulsory and the bill is payable on the last day of grace. When the last day happens to be Sunday or a public holiday the bill is payable on the proceeding business day.
Amount
The amount is a bill is given both in figures and words. It is given in figures at the top left hand corner and in words in the body of the bill.
Stamp
The stamp to be affixed on a promissory note or bill of exchange is an ad valerom stamp i.e. its value varies with the amount of the bill. payee.
Parties
There are three parties to a bill. They are drawer, drawee, and some benefit in return, it would not be a valid bill.
For Value Received
These words are important in a bill. They mean that the bill has been given in exchange for some benefit which has already been received. The benefit may have been received in the form of goods, cash or services, If however a bill is given without getting
Advantages of Bill of Exchange
- Bill of exchange fixes the date of payment. The creditor knows when to expect his money and the debtors also knows when he will be required to make payment.
- A bill of exchange is a negotiable instrument and can be used in settlement of debts.
- It is a written and signed acknowledgement of debt and affords conclusive proof of indebtedness.
- A debtor is free from worries and enjoys full period of credit, as he can never be called upon to pay the amount of the bill before the due date.
- A creditor can convert the bill into cash by. Getting it discounted with the bank.
- A bill of exchange is a ready means of transmitting money from one place to another.
- In foreign trade bills of exchange are of great assistance is enabling firms to make and receive payment.
- In accommodation bills traders by lending their names on the bills can financially help each other.
Importance of Bill of Exchange
- To obtain discount facility at the time of payment.
- To transfer bill of exchange from one person to another.
- The future transaction (payment and receipt of money) is certain.
- A businessman can also take loan from the bankers by presenting it as security.
Difference between Cheque and Bill of Exchange
| Cheque | Bill of Exchange |
| A cheque is always drawn on a banker. | A bill of exchange may be drawn on any one, including a banker. |
| A cheque can only be drawn payable on demand. | A bill of exchange may be drawn payable on demand, or on the expiry of a certain period after date or sight. |
| A cheque does not require acceptance and is intended for immediate payment. | A bill of exchange must be accepted before payment can be demanded. |
| no grace is given in case of a cheque. | A grace of three days is allowed in the case of payment of a time bill of exchange |
| The drawer of a cheque is discharged only if he suffers any damage by delay in presentation for payment. | The drawer of a bill of exchange is discharged, if it is not presented for payment. |
| Notice of dishonour of a Cheque is not necessary | Notice of dishonour of a bill of exchange is necessary |
| A cheque does not require any stamp | except in certain cases, a bill of exchange must be stamped. |
Difference between Bill of Exchange and Promissory Note
Bill of Exchange Format
Types of Bill of Exchange
- Documentary bill of exchange
- Demand bill
- Usance bill
- Inland bills
- Clean bill
- Foreign bills
- Accommodation bill
- Trade Bill
- Supply bills
- Fictitious Bill
- Hundis
Bill of Exchange conclusion
Bill of Exchange is an draft or instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a sum of money only to or to the order of a certain person or to the bearer of the instrument. Drawer, Drawee and Payee.are three parties to a bill of exchange. Drawer is the maker of the bill , Drawee is the person who ordered to pay and the person to whom or to whose order the money is directed to be paid called the payee. In some cases, drawer and payee may be one person.
MBA,BBA.
I am Smirti Bam, an enthusiastic edu blogger with a passion for sharing insights into the dynamic world of business and management through this website.
I hold a MBA degree from Presidential Business School, Kathmandu, and a BBA degree with a specialization in Finance from Apex College,
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Do you provide information on how to create a BOE and how to monetize it or set off debt? also does the bill of exchange need to be sent to the corporation that the debt is owed or the treasury?