Bill of Exchange in detail

WHAT IS BILL OF EXCHANGE ?

Bills of exchange can be defined as a short term, negotiable financial instrument ordering a certain person to pay a certain sum of money to another person.

For example, X orders Y to pay Rs 20,000 for 60 days after date and Y accepts this order by signing his name, then it will be a bill of exchange.

There are 3 parties that are involved in a bill of exchange , namely –

  1. DRAWER : This party is the maker of bill .
  2. DRAWEE : This party pays the amount stated on the bill of exchange to the payee.
  3. PAYEE : This party is paid the amount specified on the bill of exchange by the drawee.

The bills of exchange are governed by the Negotiable Instruments Act,1881 in India.

FEATURES OF BILL OF EXCHANGE

Following are the main features of a bill of exchange –

  • It must be in writing.
  • The bill must be signed by the drawer.
  • The amount of money due should be definite.
  • Fixed date for the amount to be paid
  • It must contain a confirm order to make a payment and not just the request..
  • Payment of the bill must be in the legal currency of the country.
  • It must be properly stamped.

TYPES OF BILL OF EXCHANGE

The various types of BOE are as follows :

  • ACCORDING TO PERIOD
  • Demand Bills : This bill is payable when it demanded. The bill does not have a fixed date of payment, therefore, the bill has to be cleared whenever presented.
  • Term Bills : This bill is payable after a certain amount of time or on a fixed date.
  • ACCORDING TO PURPOSE
  • Trade Bills : This kind of bill is specially related only to trade.
  • Accomodation Bills : These bills do not involve the sale or purchase of any goods and/ or services; rather they are agreements between two parties with the purpose of financial support.
  • ACCORDING TO CLASSIFICATION
  • Inland Bill : These bills are drawn between two parties that are located or reside in the same country and thus are made payable in the same country.
  • Foreign Bills : A bill that can be paid outside India is termed as a foreign bill. For example – export bill and import bill.

Thus , in simple words a bill of exchange is essentially an order made by one person to another to pay money to a third person & is generally used in international trade .

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