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.