Bill of Exchange Definition & Examples (2024)

FAQs

What is bill of exchange and example? ›

A bill of exchange is often used to protect the transaction. It is a binding agreement between buyer and seller where the buyer agrees to pay a fixed sum of cash at a predetermined date or upon demand from the seller. Banks usually act as third parties in bills of exchange to ensure payment and receipt of funds.

A "draft" is a bill of exchange which is not payable on demand of the payee.

1)the bills of exchange are for short term service this not good option for banking services. 2)if biils of exchange are not accepted then it is an additional burden on the person who was drawn it.. 4)the drawee is liable to pay the bill in time as the date of payment is fixed.

Payment and credit risks: Non-payment or delayed payment by the drawee presents a financial risk to the drawer. If the drawee fails to honour the bill upon maturity, it can strain business relationships and impact cash flow for the exporter.

Although bills of exchange may not be the go-to tool for accounting and payment agreements today, they offer a few considerable benefits: They're legal and binding documents. Bills of exchange are recognized legal documents in many nations around the world. They provide security for all parties involved.

A bill of exchange is issued by the creditor and orders a debtor to pay a particular amount within a given period of time. The promissory note, on the other hand, is issued by the debtor and is a promise to pay a particular amount of money in a given period.

A bill of exchange, a short-term negotiable instrument, is a signed, unconditional, written order binding one party to pay a fixed sum of money to another party on demand or at a predetermined date. A bill of exchange is sometimes called draft or draught, but draft usually applies to domestic transactions only.

Bills of Exchange must be dated and stamped. A Bills of Exchange must be signed by the maker or drawer. The Bills of Exchange must clearly mention the name of the drawer. The order for the Bills of Exchange must be an unconditional one.

Answer: (A) Drawer. In bill of exchange, there are three parties involved which are the drawer, the drawee and the payee. Drawer is the one who draws the bill of exchange, drawee is the person towards whom the bill of exchange is drawn and payee is the person who will be getting the payment from the bill of exchange.

What are the advantages of a bill of exchange? ›

The advantage of a bill of exchange is that it allows the person who owes the money (the debtor) to delay payment until they have the money available. However, this can be useful if the debtor expects to receive money from another source shortly. It can also be utilized as a form of collateral.

A promissory note is a written promise, whereas a bill of exchange is a written order. The promissory note allows no copies, whereas a bill of exchange can have multiple copies. Three parties are involved in a bill of exchange, but a promissory note only involves two parties.

It is just a draft till its acceptance is made. For example, Amit sold goods to Rohit on credit for ` 10,000 for three months. To ensure payment on due date Amit draws a bill of exchange upon Rohit for ` 10,000 payable after three months. Before it is accepted by Rohit it will be called a draft.

Solution. A person who draws the bill of exchange is known as Drawer.

Hence, all the above statements are true about a bill of exchange, except it is a conditional order to pay. A promissory note can be made payable to bearer.

An unconditional order in writing (also known as a draft) in which the drawer (the issuer of the draft) instructs the drawee to pay a specified sum to the payee. The most common bill of exchange today is a check drawn on a bank account: the drawer is the owner of the account and the drawee is the bank.

For example, Mr. X orders Mr. Y to pay ₹ 60,000 for 90 days after the date and Mr. Y accepts such order by signing his name, then it will be a bill of exchange.