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What is Bill of Exchange?

Bill of exchange is similar to checks and promissory notes. They can be drawn by individuals or banks and are generally transferable by endorsements. According to the Negotiable Instruments Act 1881, a bill of exchange is defined as “an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of a certain person or the bearer of the instrument”.

A Bill of Exchange is a negotiable instrument which is a legally binding document containing an order to pay a certain sum of money to a person within a pre-determined time frame or on demand by the bearer of the instrument. There are 3 parties involved in the bill of exchange, they are:

  1. Drawer: The drawer is the person who issues the instrument to receive a payment.
  2. Drawee: Drawee is the person who needs to pay the amount to the drawer.
  3. Payee: Payee is the person who receives the payment. In most cases, the drawer and the payee are the same individuals unless it is transferred to the third-party payee by the drawer.

Features of Bill of Exchange

Types of Bill of Exchange

Difference Between Bill of Exchange and Promissory Note
A bill of exchange is issued by the creditor and orders a debtor to pay a particular amount within a given period. The promissory note, on the other hand, is issued by the debtor and is a promise to pay a particular amount of money in a given period.

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