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.