Meaning of Bill of Exchange | SBI PO Prelims & Mains Preparation - Bank Exams PDF Download

Definition

Meaning

• A 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

• Drawer: The person who makes a bill of exchange is called the drawer. He is either a creditor or a seller and orders the borrower to pay the borrowed money.
• Drawee: A drawee is the one to whom the bill of exchange is made. He is either a buyer or a debtor.
• Payee: One who has to receive the amount of the bill of exchange is called the 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.
• 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.
• Holder: One who actually possesses the bill is called holder. He may be a drawer or a creditor, or a bearer or a payee.
• 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.
• 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.
• Order must be unconditional.
• A bill of exchange must be signed by the drawer.
• The parties involved in the 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 the bill of exchange

• Inland Bill: A 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 a different country and it is known as a foreign bill.

Classification by time

• A demand or a sight Bill: In 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.
  (i)  Documentary bill against payment: These types of bills are only paid when the required documents are issued and submitted to the competent authority.
  (ii) Documentary bill against acceptance: 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, payment is assigned to the person whose name is written as the 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.