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Sujai Adithya
Business Development and Banking & Financial Services Expert
Asked a question last year

What is the difference between a Cheque and Bill of Exchange?

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Sujai Adithya
Business Development and Banking & Financial Services Expert

Cheque:

  • A cheque3 is a type of instrument used for making payment to any individual. 
  • It is an absolute order which addresses the drawee to pay on behalf of the drawer to the payee. 
  • It is always due on demand for a fixed sum of money and signed by the drawer of the instrument. 
  • For payment of the cheque, an issuer and payee must have a bank account. 
  • The validity of cheque payment is 3 months and after the expiry of validity, a cheque will be dishonored.

Parties involved in the payment:

1) Drawer - The issuer of the cheque

2) Drawee - The bank

3) Payee - A party who gets payment

Bill of exchange:

  • A bill of exchange5 is an unconditional negotiable instrument of payment which directs a drawee to make payment for a certain amount of money to the payee.
  • A bill of exchange is approved by the drawer and affirmed by the drawee which has a predetermined date on which the payment is to be done to the payee.
  • Bill of exchange is an order to pay to the payee, not a promise or request which must be signed by the drawer.
  • In a bill of exchange, there is a grace period of 3 days when it becomes due.

Parties involved in bill of exchange:

1) Drawer - A maker of the bill of exchange.

2) Drawee - An individual on whom the bill is drawn means a person who accepts to make payment to the payee.

3) Payee - A Person who gets the payment.