Definition"An unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to or to the order of a specified person, or to the bearer".
MeaningA bill of exchange is a non- interest bearing written order which is used primarily in foreign trade which binds one party to pay a fixed amount of money to another party at a decided future date.
A bill of exchange is a signed by the creditor and accepted by a debtor.
Parties involved in a bill of exchange
1. Drawer:The person who makes a bill of exchange is called drawer. He is either a creditor or a seller and orders the borrower to pay the borrowed money.
2. Drawee:A drawee is the one to whom the bill of exchange is made. He is either a buyer or a debtor.
3. Payee:One who has to receive the amount of the bill of exchange is called payee. In a bill of exchange, either a drawer or a maker may receive money himself or order a drawee to pay an amount to somebody.
4. Acceptor:A person who accepts a bill of exchange to pay is called an acceptor, it may be a debtor or a drawee or a banker.
5. Holder:One who actually possesses the bill is called holder. He may be a drawer or a creditor, or a bearer or a payee.
6. Endorser:One who transfers the right of possession of the bill to other party is called endorser. He may be a drawer or a holder.
8. Endorsee:A person to whom the right of ownership is transferred is called an endorsee.
Essential components of a bill of exchange.
- A bill of exchange must be in writing form.
- It must contain an order to pay a fixed amount only.
- An order must be unconditional.
- A bill of exchange must be signed by the drawer.
- The parties involved in transaction must be certain i.e. A drawer, drawee and a payee
- A bill of exchange must be properly stamped.
- A bill of exchange can either be payable on demand or at a future date.
Classification of bill of exchange
Classification by place
Inland BillA bill which is used within a national boundary is known as inland bills. In this type, the drawer and drawee are in the same country and if a payee is from another country, the bill will remain an inland bill.
Foreign bill:In the foreign bill, a drawer and a drawee both are from the different country and it is known as a foreign bill.
Classification by time
A demand or a sight billIn a demand or a sight bill, a bill is payable on demand or at a sight. it means this bill does not contain a specific time for the payment.
Time or Usance bill:This type of bill is issued for a specified period of time and it is payable only after that date. In this type of bill, a grace period of 3 days is allowed after the date fixed for the payment and once the grace period over it becomes null.
Classification by documents
Documentary bill:This type of bills carries documents with them same as railway receipts, insurance receipts etc. It is further classified into two types.
A) Documentary bill against payment:
These types of bills are only paid when the required documents are issued and submitted to the competent authority.
B) Documentary bill against acceptance:
A documentary bills are only which are accepted when the documents are realized by the drawer.
Clean or non-documentary bills:A clean or non- a documentary is a bill which is either drawn or accepted without being attached to the documents.
Classification by payment
Bearer bill:A bill which is payable to any person who bears or carries them.
Order bill:In this type of bill, a payment is assigned to the person whose name is written as payee.
Classification by other kinds
Trade bill:A trade bill an ordinary and most common type of bill used in business transactions. A bill is drawn by the seller against the buyer of goods.
Accommodation bill:An accommodation bill is drawn to borrow a specific amount of money. Its main intention is to accommodate the drawer.
Bank bill:A bank bill is drawn on the bank by a bank.
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