Wednesday, 5 January 2011

Basic essential and Basic points of Bill of Exchange

A bill of exchange is an instrument in writing containing an unconditional order signed by the maker directing a certain sum of money to a certain person or the bearer.


1. Drawer :-
The person who is giving the order in a bill about the payment is called drawer.

2. Drawee :-
Drawee is the person on whom the bill is drawn or whom the order is a addressed.

3. Payee :-
He is a person to whom the money is to be paid.

4. Holder :-
The holder of the bill of exchange or cheque means the payee.

Following are the main requirements of bill of exchange :

1. In Writing :-
A bill of exchange must be in writing. It can not be oral. But no any a particular language is prescribed by the law.

2. An Order :-
A bill of exchange should be framed in such a manner that it may not be treated as a request. It should be an order.

3. Unconditional :-
The order to pay must be unconditional. If the payment is conditional then it would be not a bill of exchange.

4. Signature of the Maker :-
It must be signed by the maker. A bill is not valued unless it is signed by the drawer.

5. Nomination Of the Drawee :-
It is essential that the drawee should be named or indicated with reasonable certainty.

6. Time Period :-
The sum of money should be payable on demand at a fixed date or on some future date.

7. Payee Must be Certain :-
The payee should be indicated on the face of the bill of exchange if the bill is not payable to the bearer.

8. Certain Sum of Money :-
The bill must contain the direction for the payment and sum must be certain the explanation of rate of interest.

9. Acceptance :-
It requires acceptance if it is not a sight bill.


Sight Bill of Exchange :-
A bill ordering payment on demand or at sight called sight bill.

Time Bill :-
A bill or ordering payment after a period of time specified on it is called time bill.

Documentary Bill :-
If the bill is fully supported by documents for payments is called documentary or secured bill.

Clean Bill :-
If no security is provided with the bill, it is called clean bill.

Inland Bill of Exchange :-
Inland bills are those which are drawn and payable within the country.

Foreign Bill of Exchange :-
Foreign bills are those which arise out of trade transactions between different parties in different countries.

Bill of exchange is very useful in the National and International trade. Bill of exchange facilities the businessman and discourages funds. The businessman can easily purchase goods by promising to pay on some future date. Before the maturity of the bill, he can arrange to sell the goods in the market and made the payment. Foreign bill of exchange greatly helps in making international payments. A bill of exchange is also considered as a very convenient method of investing liquid funds. The owner of the bill can get it discounted at the bank whenever he is need of money for consumption or for commercial purposes. The bank regards the discounting of bill very useful investment. Whenever the commercial banks are in need of cash they get these bills re-discounted at the Central Bank.


Anonymous,  21 January 2012 at 03:31  


Anonymous,  17 February 2012 at 22:31  


Anonymous,  25 December 2012 at 01:42  

Nicely put!
Liked it :)

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