Goods are sold in lieu of cash or credit. The seller immediately gets the payment for the goods sold for cash; however, when it’s a credit transaction, the buyer intends to make payment within the agreed credit period. This promise of paying in the future by the purchaser can be noted in the written promise; in the sense that it can either be the promissory note or Bill of Exchange.
Definition of the Bills of Exchange
As per the Negotiable Instrument Act, 1881, the bill of exchange is the written instrument that holds the unconditional order which is signed by the drawer that directs a specific person for paying the certain amount only to, or to the order of, the bearer of the instrument or a definite person.
Conditions when Drawer is the Payee
Here the drawer is the payee himself and if he keeps the bill with himself until the date of the payment.
Conditions when Drawer is not the Payee
The drawer is not the payee if he gets the discounted bill or if the bill gets endorsed in favour of the creditor.
The Bills of Exchange Features
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The bill of exchange should be in writing, and it cannot be verbal.
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It is made and signed by the drawer.
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It is the unconditional order to the person for whom credit has been granted.
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The drawee or person is payable to the person whose name gets mentioned in the bill.
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The bill also has a mention of the date by which the specified amount needs to be paid by the drawee.
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The bill should be accepted by the drawee for making it legal.
The Types of Bills of Exchange
The types of bills of exchange are the trade bill and accommodation bill.
Trade Bill: The trade bill is the bill of exchange that is drawn and accepted for settling the trade transaction. It is known as the trade bill. This bill of exchange is essentially drawn by the seller of goods, and it is accepted by the purchaser.
Accommodation Bill: In this category, the bill of change is made and accepted for mutual help, and it is known as the accommodation bill. This bill is used for mutual benefit without the trade transaction. It doesn’t involve the purchase or sale of any specific goods or services. This type of bill has an agreement between the parties for giving financial assistance to others.