Need and importance of bills of exchange
Answers
Meaning of Bill of Exchange
According to the Negotiable Instruments Act 1881, ‘a bill of exchange is defined as an instrument in writing containing 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 a certain person or to the bearer of the instrument.’
Features of Bill of Exchange
It is important to have a bill of exchange in writing
It must contain a confirm order to make a payment and not just the request
The order should not have any condition
The bill of exchange amount should be definite
Fixed date for the amount to be paid
The bill must be signed by both the drawee and the drawer
The amount stated on the bill should be paid on-demand or on the expiry of a fixed time
The amount is paid to the beneficiary of the bill, specific person, or against a definite order
Also Read: Important Questions for Bills of Exchange
Types of Bill of Exchange
Documentary Bill- In this, the bill of exchange is supported by the relevant documents that confirm the genuineness of sale or transaction that took place between the seller and buyer.
Demand Bill- This bill is payable when it demanded. The bill does not have a fixed date of payment, therefore, the bill has to be cleared whenever presented.
Usance Bill- It is a time-bound bill which means the payment has to be made within the given time period and time.
Inland Bill- An Inland bill is payable only in one country and not in any other foreign country. This bill is opposite to foreign bill.
Clean Bill- This bill does not have any proof of a document, so the interest is comparatively higher than the other bills.
Foreign Bill- A bill that can be paid outside India is termed as a foreign bill. Two examples of a foreign bill are an export bill and import bill.
Accommodation Bill- A bill that is sponsored, drawn, accepted without any condition is known as an accommodation bill.
Trade Bill- This kind of bill is specially related only to trade.
Supply Bill- The bill that is withdrawn by the supplier or contractor from the government department is known as the supply bill.
Must Read: Accounting for Bills Exchange
Advantages of Bill of Exchange
Legal Document- It is a legal document, and if the drawee fails to make the payment it will be easier for the drawer to recover the amount legally.
Discounting Facility- The bill bearer has to wait till the due date of the bill to receive the payment and it from the bank before its due date.
Endorsement Possible- This bill of exchange can be exchanged from one individual to another for the adjustment of the debt