Bill of Exchange: An Introduction
A written document used in international trade that binds one entity to pay a specified amount to the second entity on demand or at a specified date is known as a bill of exchange. It is very similar to a promissory note. It can be drawn by a bank or even an individual. It is transferable by endorsements.
A bill of exchange helps international traders to complete transactions. However, it is important to note it is not a contract. It simply specifies the terms and conditions of a transaction like the credit terms and accrued interest rate.
Mechanics of the Bill of Exchange: Understanding its Functionality
A bill of exchange transaction can have up to three parties involved. The party that pays the amount specified in the bill of exchange is called the drawee. The receiver of the sum is called the payee. The drawer is the one that ensures that the drawee pays the payee. The drawer and the payee can be the same entity unless the powers of the drawer are given to a third party to create the bill of exchange.