Bill Of Exchange

Published Aug 6, 2023

Definition of Bill of Exchange

A bill of exchange is a written order from one party (the drawer) to another (the drawee) to pay a certain sum of money at a specified date in the future. That means it is a type of promissory note that is used to transfer money from one party to another. It is usually used in international trade transactions and is often referred to as a “draft”.

Example

To illustrate this, let’s look at an example. Imagine a company in the United States that wants to buy a shipment of goods from a supplier in China. The supplier agrees to the deal but wants to be paid in advance. To facilitate the payment, the buyer issues a bill of exchange. This bill of exchange is a written order from the buyer to the supplier, instructing the supplier to pay a certain sum of money at a specified date in the future. The supplier then sends the bill of exchange to its bank, which in turn sends it to the buyer’s bank. The buyer’s bank then pays the supplier the agreed-upon sum of money.

Why Bill of Exchange Matters

Bills of exchange are an important tool in international trade transactions. They provide a secure and reliable way to transfer money from one party to another. This is especially important in cases where the parties involved are located in different countries and have different currencies.

In addition to that, bills of exchange are also used in domestic transactions, as they provide a way to transfer money without the need for cash.