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Business Jargons

A Business Encyclopedia

Bill of Exchange

Definition: Bill of Exchange, can be understood as a written negotiable instrument, that carries an unconditional order to pay a specified sum of money to a designated person or the holder of the instrument, as directed in the instrument by the maker. The bill of exchange is either payable on demand, or after a specified term.

In a business transaction, when the goods are sold on credit to the buyer, the seller can make the bill and send it to the buyer for acceptance, which contains the details such as name and address of the seller and buyer, amount of bill, maturity date, signature, and so forth.

Features of Bill of Exchange

  • An instrument which a creditor draws upon his debtor.
  • It carries an absolute order to pay a specified sum.
  • The sum is payable to the person whose name is mentioned in the bill or to any other person, or the order of the drawer, or to the bearer of the instrument.
  • It requires to be stamped, duly signed by the maker and accepted by the drawee.
  • It contains the date by which the sum should be paid to the creditor.

Parties to Bill of Exchange

parties to bill of eschange

  1. Drawer: The person who makes the bill, or who gives the order to pay a certain sum of money, is the drawer of the instrument.
  2. Drawee: The person who accepts the bill of exchange, or who is directed to pay a certain sum, is called drawee.
  3. Payee: The person receiving payment is called the payee, who can be a designated person or the drawer himself.

Now, apart from the parties mentioned above, there are some other parties to a bill of exchange, described as under:

  • Drawee, in case of need: If in any bill of exchange, a person’s name is mentioned in addition to the original drawee, who can be resorted for payment. Then, that person will be called as drawee.
  • Holder: The holder of the bill of exchange, is the person who possesses the bill and who has the right to recover the amount from the parties.
  • Acceptor: The person who accepts the bill is called acceptor. Usually, a debtor or drawee is the acceptor. However, it can be accepted by some other person also, on behalf of the debtor/drawee.
  • Endorser: If the holder of the bill, endorses it to another person, then the person will be called as the endorser.
  • Endorsee: The person to whom the bill of exchange is endorsed, is called as an endorsee.

Specimen of Bill of Exchange

Specimen of Bill of Exchange

Example

Joseph gives a loan of Rs.1,00,000 to Alex, which Alex has to return after three months. Further, Joseph has bought certain goods from Peter, on credit for Rs. 1,00,000. Now, Joseph can create a document directing Alex, to pay Rs. 1,00,000 to Peter, after three months.

The instrument will be called as Bill of Exchange, which is transferred to Peter, on whom the payment is due, for the goods purchased from him.

Related terms:

  1. Promissory Note
  2. Cheque
  3. Types of Foreign Exchange Market
  4. Bill of Lading
  5. Foreign Exchange Exposure

Reader Interactions

Comments

  1. Siddhi says

    August 12, 2018 at 12:39 pm

    Nice.very helpful for me

    Reply
  2. GANAPATHI says

    December 7, 2018 at 8:44 pm

    good .useful one thanks

    Reply
  3. Seemab Sajid says

    December 14, 2018 at 4:55 am

    Very helpful. Thanks

    Reply
  4. PRADEEP says

    December 18, 2018 at 6:38 pm

    Thanks

    Reply
  5. Khushi says

    January 2, 2019 at 10:28 pm

    This is a sensible one

    Reply
  6. Khashinde says

    February 22, 2019 at 12:19 pm

    Thanks

    Reply
  7. Mizan says

    February 23, 2019 at 7:21 pm

    Thanks, really helpful for better understanding

    Reply
  8. Thi says

    March 16, 2019 at 11:41 pm

    Thanks very useful for me.

    Reply
  9. Abdulrehman says

    April 11, 2019 at 4:24 pm

    Now i understand the parties of BE thanks very much

    Reply
  10. Eric says

    April 19, 2019 at 9:50 am

    Helpful

    Reply
  11. Sameer saini says

    May 18, 2019 at 6:57 am

    Really helped a lot in easy learning

    Reply
  12. Lalitha says

    September 8, 2019 at 8:24 pm

    Thank you

    Reply
  13. Syed says

    October 14, 2019 at 11:17 pm

    You used the simplest language to convey the message which is undoubtedly understandable to even non-finance backgrounds.

    Reply
  14. realesson says

    December 26, 2019 at 11:10 pm

    Great Information! I visited your website today and found it very interesting and well done.

    Reply
  15. Prashant Sudhakar Patil says

    April 17, 2020 at 6:40 pm

    Thank you, Very much.

    Reply
  16. Victoria says

    February 16, 2021 at 3:13 am

    Thanks alot

    Reply
  17. Mustapha sesay says

    February 27, 2021 at 8:46 pm

    Thanks very much for this outstanding teaching

    Reply

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