A bill of exchange is a legal document that serves as a promissory note, guaranteeing payment from one party to another. It is commonly used in commercial transactions to facilitate the movement of goods and services. The bill of exchange is a negotiable instrument, which means it can be transferred to another party for payment, making it a convenient and secure method of conducting business transactions.
Types of Bills of Exchange
There are several types of bills of exchange, each serving a specific purpose in different business transactions. Let’s explore some of the most common types:
- Sight Bill: A sight bill is payable immediately upon presentation to the drawee, which is the party obligated to make the payment. This type of bill is often used in cases where there is an immediate need for funds, or when the parties involved have a long-standing and trustworthy relationship.
- Time Bill: A time bill, also known as a usance bill, is payable after a specified period of time, usually after a certain number of days or months from the date of acceptance. This type of bill allows the drawee more time to arrange for funds and is commonly used in international trade transactions.
- Clean Bill: A clean bill is an unconditional undertaking by the drawer to pay the payee without any additional conditions. Unlike other types of bills that may require supporting documents or evidence of delivery, a clean bill does not have any such requirements.
- Documentary Bill: A documentary bill is a bill of exchange accompanied by supporting documents, such as invoices, bills of lading, or insurance policies. These documents provide evidence of the underlying transaction and are required to be presented along with the bill to claim payment.
- Inland Bill: An inland bill is a bill of exchange that is drawn and payable within the same country. It is commonly used for domestic trade transactions and does not involve international borders.
- Foreign Bill: A foreign bill is a bill of exchange that is drawn in one country and made payable in another country. This type of bill is used in international trade transactions and often involves foreign exchange considerations.
- Banker’s Acceptance: A banker’s acceptance is a bill of exchange that is guaranteed by a bank. It is commonly used in financing transactions and serves as a form of short-term credit.
Conclusion
Understanding the different types of bills of exchange is essential for businesses involved in commercial transactions. Whether it’s a sight bill for immediate payment or a time bill for deferred payment, choosing the right type of bill can help facilitate smooth and secure financial transactions. Additionally, knowing the various requirements and characteristics of each type of bill can help businesses navigate the complexities of international trade and ensure compliance with legal and financial regulations.
ACCORDING TO PLACE:
If the division of bills of exchange is made on the basis of place then it called place wise types of bill. It has following two kinds.
(a) Inland Bills of Exchange:
A bill, which is drawn, accepted and paid in the one country then it is called inland bills of exchange. In other words, the drawer and drawee belong to the same country. Inland bill has two kinds.
(i) Inland Sight Bill:
The amount of this bill is paid on the presentation of bill. Normally, this bill is used in local trade.
[Specimen of Sight Bill]
(b) Foreign Bills of Exchange:
It is a bill of exchange, which is drawn in one country and accepted in another country. In other words, the drawer and the drawee belong to two different countries. It has following two kinds.
- Foreign Sight Bill:
The amount of this bill is paid on the presentation of bill.
- Foreign Time Bill:
The payment of this bill is made at the expiry of a fixed future time.
- ACCORDING TO OBJECT:
- here are following two types of bill according to object.
- Trade Bills of Exchange:
It is a bill, which is issued or drawn to settle any trade transaction. When any trader sells goods on credit, he draws a bills of exchange on the purchaser for the amount. This bill is considered as trade bill.
- Accommodation Bills of Exchange:
This bills of exchange does not involve any trade transaction, it is issued and accepted only for accommodation purpose.
The parties of accommodation bills of exchange can be benefited in following ways:
- Accommodation of drawer only with one bill:
Under this method the drawer:
- Discounts the bill after getting acceptance.
- Sends the amount of bill to drawee on due date who makes the payment to bank.
- Accommodation of drawer &drawee with one bill:
Under this method the drawer:
- Discounts the bill after getting acceptance.
- Then both share the amount of bill and discount according to agreed ratio.
- On due date, the drawer returns the balance amount to drawee and the drawee pays the bill to bank.
- Accommodation of drawer &drawee with two separate bills:
In this method:
- Both parties draw on each other and accept the bills of same amount.
- Both parties discount their bills and get the amount.
- On due date, both drawer and drawee pay the bill to banks.