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What are Bills of Exchange?

by Uddipana Gogoi

Bills of Exchange is a negotiable instrument. Additionally, it is an order instrument that contains an unconditional order from creditor to debtor to pay a certain sum of money on a certain date. In other words, is a written order by the drawer to the drawee to pay money to the payee. Moreover, section 5 of the Negotiable Instrument Act, 1881 defines the bills of exchange. However, the creditor draws such bill on debtor for making payment against the credit purchase at a later certain date.

Specimen of Bills of Exchange

Specimen of bills of exchange

Parties of Bills of Exchange

It has three parties-

  1. Drawer:

Drawer is the person who draws the instrument. Thus, creditor draws it over debtor.

  1. Drawee:

Drawee is the person over whom the bill is drawn. Thus, the debtor is the drawee who is responsible for making payment.

  1. Payee:

It is the beneficiary of the instrument who will receive money for the instrument. 

Types of bills of exchange

1) Documentary bill of exchange :

Such bills of exchange are always accompanied by supporting documents. Thus, it confirms the authenticity of trade or transaction that has taken place between the seller and the buyer is called a documentary bill. For instance, the documents are invoices, receipts, bills of lading, railway bills etc.

2) Demand bill :

Such bills of exchange are payable on or when presented at the site. The demand bill does not have a due date or time specifically mentioned for the payment and hence the payment can be made when the bill is presented.

3) Usance bill :

It is also known as a time bill.  Hence, it is payable within the  mentioned time period for the payment on it. 

4) Inland bills :

A Bill drawn in India and payable only in India or a bill is termed an inland bill. 

5)  Foreign bills :

A bill of exchange bound to be paid outside India is called foreign bill. The bill of exchange which is not an inland bill is termed as a foreign bill.

7)Accommodation bill :

Whenever a bill is accepted or drawn or endorsed regardless of any condition is termed as accommodation bill.

8) Trade Bill :

Trade bills are drawn to facilitate trade and support credit transactions between the debtor and creditor. Thus, trade bills are common in case of international trading.

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