Bills of Exchange

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  • Topic: Promissory note, Negotiable instrument, Bearer instrument
  • Pages : 5 (1270 words )
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  • Published : May 14, 2011
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BILLS OF EXCHANGE

According to Indian Negotiable Instrument Act, “ A bill of exchange is an instrument in writing, an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to or to the order of certain person or to the bearer of the instrument.”

CHARACTERISTICS
Bills of exchange has got the following features:

1.An Unconditional order
It is an order by the drawer (creditor) to his drawee {debtor) without any condition. It becomes binding upon the acceptor of the bill to carry out the order. 2.Written document

Bill of exchange must be in writing. It is a document, which can be produced in the court as evidence.
3.Order to pay certain amount
It is an unconditional order to make payment of certain specified amount. The amount must be specified in figures and words.
4.Payment on specified date
The amount is payable after the expiry of certain period. Normally 2 to 3 days of grace are allowed
5.Signed by the drawer
The bill must be signed by its maker. Without signature, it will not be a legal document.

IMPORTANT NOTES REGARDING BILL OF EXCHANGE.

1.Bill of exchange is drawn by a creditor upon his debtor.
2.It is legal valid document.
3.It is also an evidence of debt.

PARTIES TO THE BILL OF EXCHANGE

Bill of exchange involves the following three parties:

1.Drawer
Drawer means the person who draws/or makes the bill for receiving certain amount from the drawee. He must be the creditor or supplier or seller. 2.Drawee
Drawee is the person or the party who has to make the payment or who accepts to make the payment against the bill drawn by the creditor. 3.Payee
Payee is the person who receives the payment. In the case of bill of exchange. If the bill is retained by drawer till due date then Drawer is a ‘payee’; if the bill is discounted with the bank then Bank is a payee, and if the bill is endorsed to endorsee, then endorsee is the payee.

DUE DATE OR DATE OF MATURITY

It is the specific date on which the payment of the bill has to be made. In other words, it is the date on which the bill matures for payment. The bill will cease to exist after its due date. While calculating due date of the bill, three days of grace have to be compulsorily added. The drawee can avail of 3 days of grace as a mater of legal right.

Advantages of Bill of Exchange
A bills of exchange has got the following advantages:

1.Evidence of debt
Bill of Exchange is a proof that the drawee owes the amount. It serves as an evidence/written acknowledgement of debt duly signed and stamped. 2.Discounting facility
In case, the drawer is in the immediate need of funds, he can get the bill discounted with the bank and have the funds even before the due date. 3.Endorsement facility
The drawer can endorse the bill in favour of his creditor and settle his account.
4. Facilitates purchases and sales.
The use of bills of exchange has facilitated credit purchases and sales. The seller is ensured that the payment will be made on certain specified date. 4.Legal Document
Bill of exchange is a legally valid document is the eyes of law. If the drawee refuses or fails to make its payment, a suit can be filed against the drawee.

TYPES OF BILLS OF EXCHANGE
From accounting point of view, bill of exchange is of two types.

i) Trade Bill: - Where a Bill of Exchange is drawn and accepted for a genuine trade transaction, it is called “Trade Bill.” ii) Accommodation Bill: - Where a bill of Exchange is drawn and accepted for mutual help, it called “ Accommodation Bill.”

HANDLING OF BILL OF EXCHANGE

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