What Is a Bill of Exchange?

A bill of exchange is a written order used primarily in international trade that binds one party to pay a fixed sum of money to another party on demand or at a predetermined date. Bills of exchange are similar to promissory notes; individuals or banks can draw them and are generally transferable by 澳洲幸运5官方开奖结果体彩网:endorsements.

Using Bills of Exchange

A bill of exchange is 澳洲幸运5官方开奖结果体彩网:used in international trade to pay for goods or services. While a bill of exchange is not a contract, the involved parties can use it and its format to fulfill a contract. It can specify that payment is due on demand or at a specified future date. The period between billing and payment is 澳洲幸运5官方开奖结果体彩网:called the usance. It's of💫ten extended with credit terms, such as 90 days.

A transaction can involve up to three parties. The drawee is the party that pays thܫe sum specified by the bill of exchange. The payee is the🃏 one who receives that sum. The drawer is the party that obliges the drawee to pay the payee. The drawer and the payee are the same entity unless the drawer transfers the bill of exchange to a third-party payee.

Bills of exchange generally do not pay interest, making them, in essence, 澳洲幸运5官方开奖结果体彩网:post-dated checks. They may accrue interest if not paid within an agreed timeline, and the rate must be specified on the instrum💞ent.

Types of Bills of Exchange

• Bank Draft: A bill of exchange issued by a bank. The issuing bank guarantees payment on the transaction.
• Trade Draft: Bills of exchange issued by individuals.
• Sight Draft: Funds are paid immediately or on demand. In international trade, a sight draft allows an exporter to hold the title to the exported goods until the importer takes delivery and immediately pays for them.
• Time Draft: Funds are paid at a set date in the future. A 澳洲幸运5官方开奖结果体彩网:time draft gives the importer a short amount of time to pay the exporter for the goods after receiving them.

Example

Suppose Company ABC purchases auto parts from Car Supply XYZ for $25,000. Car Supply XYZ draws a bill of exchange, becoming the drawer and payee in this case. The bill of exchange stipulates that Company ABC will pay Car Supply XYZ $25,000 in 90 days. Company ABC becomes the drawee and accepts the bill of exchange, and the goods🦂 are shipped.

In 90 days, Car Supply XYZ will present the bill of exchange to Company ABC for payment. The bill of ex✱change was an acknowledgment created by Car Supply XYZ, the creditor, to show the indebtedness of Company ABC, the debtor.

The Bottom Line

Bills of exchange help facilitate the process of international traꦺ🏅de by stipulating payment from one party to another at a specified date. They are not a contract but can be used to fulfill the terms of a contract.