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Bill of Exchange

Bill of Exchange (Draft) is a legal document evidencing claims for amounts owed. In some countries, there is a distinction between bills of exchange in connection with the settlement of debt within a country (inland bills) and bills of exchange in connection with the settlement of debt between a buyer in one country (importer) and a seller (exporter) in another country (foreign bills). A Bill of Exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a particular person to pay a particular sum of cash only to, or to the order of a particular person or to the bearer of the instrument.

The maker of a bill of exchange is named the drawer. The one that is directed to pay is named the drawee. The one that will receive the cash is named the payee. When the payee has custody of the bill, he/she is called the Holder. It is the duty of the Holder to present the bill to the drawee for his/her acceptance. The drawee signifies his/her acceptance by signing on the bill. After such signature the drawee becomes the Acceptor.

Below key points should be keep in mind regarding Bill of Exchange:

1) Amount of bill of exchange differs with that of invoice
2) Not drawn on L/C issuing Bank.
3) Not signed.
4) Tenor of Bill of Exchange not identical with L/C
5) Amount in figures corresponds exactly with the amount in words.
6) Bill of exchange is not endorsed correctly.
7) Bill of exchange payable on an interminable date.

Bill of exchange Definition
A bill of exchange is 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 bearer. Primarily, there are three parties:
Drawer: The Drawer is the person who draws the bill and he stands as the creditor to drawing the bill, the drawer engages himself to redeem
the bill and pay to the owner or holder of the bill.
Drawee: The drawee is the person (or firm) on whom the bill is drawn. That is, s/he is the person on whom the payment order is addressed.
Payee: The Payee is the person to whom the bill is payable. The bill can be drawn payable to the drawer or to his bank.

Bill of Exchange

Drawing and Signing of Bill of Exchange/Draft:
To be drawn by and signed by the LC beneficiary and is to be indicate of an issue date. At the point when the LC recipient/Beneficiary or the second LC recipient/Beneficiary has changed its name, a draft might be attracted the name of new element gave that it specifies “in the past known as (name of the recipient or second recipient)” or expressions of comparative impact.
Credit Available: By negotiation with a nominated bank or any bank. By acceptance with any bank, By acceptance with a nominated bank or any bank, and the draft is to be drawn on that nominated bank (which is not a confirming bank), and it decides not to act on its nomination, the beneficiary may choose to: Credit is available by acceptance with a confirming bank, and the draft is to be drawn on that confirming bank. The beneficiary may request that the presentation be forwarded to the issuing bank in the form as presented, with or without a draft drawn on the issuing bank. Bill of Exchange or Draft is to be drawn on other than the nominated bank: The draft is to be drawn on the bank that approves to accept the draft and is thereby willing to act on its nomination.
A. Draw the draft on the affirming bank, assuming any, or ask for that the introduction be sent to the affirming bank in the frame as exhibited

B. Present the archives to another bank that consents to acknowledge a draft drawn on it and in this way follow up on its designation (pertinent just when the acknowledge is accessible for any bank); or demand that the introduction be sent to the issuing bank in the shape as gave or without a draft drawn on the issuing bank.

Main Features of Bill of Exchange: 

  • The instrument must be in writing.
  • The instrument must be signed by the by the drawer.
  • The instrument must contain an order to pay, which is to be expressed and unconditional.
  • The drawer, drawee and therefore the payee must be sure and definite individuals.
  • the quantity of cash to be paid must be sure .
  • The payment must be in the legal tender money of the country.
  • The money must be payable to a definite person or according to his/her order.
  • A bill of exchange must be properly stamped.
  • The bill could also be made payable on demand or after a particular period of your time .