What does Bill of Exchange mean?

An unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to or to the order of a specified person, or to the bearer.

A bill of exchange is a non-interest bearing written order which is used primarily in foreign trade which binds one party to pay a fixed amount of money to another party at a decided future date. A bill of exchange is a signed by the creditor and accepted by a debtor.

Essential components of a bill of exchange:

• A bill of exchange must be in writing form.
• It must contain an order to pay a fixed amount only.
• An order must be unconditional.
• A bill of exchange must be signed by the drawer.
• The parties involved in transaction must be certain i.e. A drawer, drawee and a payee.
• A bill of exchange must be properly stamped.
• A bill of exchange can either be payable on demand or at a future date.

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