What is a Bill of Exchange?

Meaning

Bill of exchange is a financial instrument in writing containing an unconditional order signed by the maker, directing another person to pay a specific sum of money. The amount may be paid in any of the following ways;

• to the bearer of the instrument, (or)
• to the order of a particular person, (or)
• to a particular person

Features of BOE

• Bill of exchange is a written order.
• Signed both by the drawer and the acceptor.
• It is accepted by the drawee and doesn’t have any conditions attached.
• Unlike a promissory note which is only a promise, a BOE is an order of payment on a specific date.
• It is payable either on-demand or after a fixed period.

Parties Involved

Drawer – is the seller or the creditor who issues the instrument and is entitled to receive the money-back from the person to whom the credit is extended. Drawer signs the BOE.

Acceptor or Drawee – is the purchaser or the debtor who accepts the instrument and to whom credit has been extended. Drawee is required to pay the amount back to the seller. A bill of exchange is signed and accepted by the acceptor/drawee.

Payee – The person to whom the amount is supposed to be paid is called a payee. The drawer himself or a third party may be made a payee.

Template for Bill of Exchange

Short Quiz for Self-Evaluation

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