- 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.