Bills of exchange

Bill of exchange

• The Bill of Exchange Act defines the bill of exchange as:
• An unonditional order in writing, addressed by one person to another, singed by the person giving it, requiring the person to whom it is addressed to pay on demand, or a at a fixed determinable future time, a certain sum of money to or to bthe order of a specified person or a bearer.
• It is drafted by an exporter and sent to an importer.
• It is drawn for a period of three months or multiples of the same.
• Must first be accepted by the importer ( who then writes “accepted” across the face of the bill.)

Importance of a Bill of Exchange.

• An unconditional order used to secure payment.
• A method of settling debts used mainly in foreign trade.
• Required as part of a documentary credit.
• An evidence of debt when accepted by the importer.
• Can be discounted before it matures to enable the exporter to obtain early payment.
• Discounting the bill prevents working capital being tied up in trade debtors.
• Enables imported goods to be sold before the bill matures.
• Gives the importer a period of credit before making payment.
• Enables trade to exists among companies of various countries.

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