Bill of Exchange (BOE):

As per the Negotiable Instrument Act, 1881 bill of exchange is 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 to the bearer (the person who present the BOE) of the instrument.

Few important points about BOE:

  • It is payable at sight or at usance
  • It is a negotiable instrument
  • In the case of paid bill, BOE becomes the property of the foreign buyers & in the case of unpaid or dishonored bill, BOE goes back to the exporter.
  • BOE can be transferred unlimited time before the due date.
  • Generally, two parties are involved in BOE a) Drawer b) Drawee
  • Drawer is the one who draws the bill upon Drawee
  • Drawer is also called payee
  • Drawee is supposed to make payment to the drawer.
  • Drawer is creditor & Drawee is debtor
  • BOE can be exchanged by ‘n’ number of parties.
  • BOE is an asset for exporter & a liability for foreign buyer

Functions of Bill of exchange

  • It’s a mean to demand the payment
  • It’s a mean to collect the payment
  • It’s a mean to extend the credit
  • It’s a mean to promise the payment
  • It’s an official receipt of payment in the hand of the foreign buyer
  • Facilitates the seller with access to finance by allowing them to transfer their debts to a bank or financier by simply endorsing the BOE to that bank or financier.
  • Allows the financier or banker to retain a convincing legal claim on the buyer as well as the seller.