Bills of exchange are financial instruments that play a vital role in international trade and commerce. They are widely used to facilitate transactions, provide security, and offer credit. Understanding the features of bills of exchange is crucial for businesses and individuals involved in the global market. In this article, we will explore the key characteristics of bills of exchange and shed light on their importance in modern-day transactions.
FEATURES OF BILLS OF EXCHANGE
- Negotiability:
Bills of exchange are considered negotiable instruments, meaning they can be transferred from one party to another. This feature allows for flexibility and ease of trade as it enables the transfer of obligations and ownership between parties. - Unconditional Promise:
Bills of exchange contain an unconditional promise to pay a specific amount of money to the designated party at a predetermined future date. The promise is legally binding and ensures that the payment will be made as specified. - In Writing:
It is a requirement for bills of exchange to be in writing, ensuring clarity and accountability in transactions. This feature ensures that the terms and conditions of the bill are clearly stated and agreed upon by all parties involved. - Signature:
Bills of exchange must be signed by the party who creates it, known as the drawer. The signature indicates the intent to make the payment and guarantees the authenticity of the bill. - Stamp Duty:
Certain jurisdictions may require bills of exchange to be stamped, thereby validating their legal status. The payment of stamp duty serves as evidence that the bill has been legally executed and can be enforced in a court of law if necessary. - Specific Payee:
Bills of exchange are made payable to a specific party, known as the payee. This feature ensures that the payment is received by the intended recipient and provides security and confidence in the transaction. - Fixed Amount:
Bills of exchange specify a fixed amount of money that is to be paid. This feature eliminates ambiguity and prevents any disputes regarding the payment due. - Maturity Date:
Bills of exchange have a maturity date, which is the date on which the payment becomes due. This predetermined date ensures that both the drawer and the payee are aware of when the payment should be made, allowing for proper planning and financial management.
The important features of bill are as follows:
- Order:
The bills of exchange is an order for payment not a request to debtor.
- In Writing:
The order of payment for debtor is always in writing.
- Unconditional:
The bills of exchange is an unconditional order for payment. If any condition is attached, it makes the bill invalid.
- Certain Amount:
This instrument is only for the payment of a certain amount, which is written in words and figures on it.
- Specified Person (Drawee):
The bill is always drawn in the name of that person who is responsible for the payment. He is a person who buys goods on credit or takes loan.
- Acceptance:
The bills of exchange must be accepted by the drawee, because it has no legal value without the acceptance.
- Drawer:
The drawer of the bill is always that person who sells the goods on credit or lends money.
- Signatures of Drawer:
The drawer must sign the bill otherwise it will be invalid.
- Payee:
He is the person whc receives the amount of bill. He may be the drawer or the bearer of bill.
- Personality of Drawer &Drawee:
Popular names of drawer and drawee or names known to the business community should be mentioned in the bill.
- Payment of Bill:
The payment of bill is made on demand or at a fixed future time.
- Revenue Stamps:
Revenue stamps are pasted on the bill according to its value. Local bill is stamped once where as foreign bill is stamped twice.
- Parties:
There are three important parties of bills of exchange:
- Drawer (Creditor)
- Drawee (Debtor)
- Payee (Who receives the amount of bill)
- Endorsement of Bill:
The drawer or holder of bill can endorse his bill to another person for the settlement of debt or for payment.
- Facility of Credit:
The drawer or holder of bill can avail credit in need by discounting the bill from bank. The tenure of loan or credit is according to date written on bill.
- Renewal of Bill:
If the acceptor (drawee) in not able to meet the bill on due date then he can renew his bill with the consent of drawer. In this case the drawer can plus the amount of interest in new bill.
- Partial Payment:
If the drawee cannot pay the total amount of bill on maturity then he may request for the new bill of balance amount after making partial payment to drawer. The interest on balance amount is also added in new bill.
- Retirement of Bill:
If the drawer makes payment of bill before its maturity under rebate wit the consent of drawer then it is called retirement of bill.
- Dishonouring and Protesting:
If the drawee does not pay bill on due date (dishonouring of bill) then the drawer gets certification of dishonouring from notary public. In case of foreign bill, protesting is also necessary along with noting. The main objective of protesting and noting is to get a reliable proof of dishonouring.
- Grace Days:
The drawee is given or allowed three grace days in addition to fixed or decided period for the payment of bill.
Conclusion
Understanding the features of bills of exchange is essential for anyone involved in international trade and commerce. Their negotiability, unconditional promise to pay, and other key characteristics provide security, trust, and flexibility in transactions. By incorporating bills of exchange into business dealings, individuals and businesses can effectively manage cash flow, enhance creditworthiness, and facilitate international trade.