Bill of Exchange



Bill of Exchange :

A bill of exchange also known as draft contains an order from the creditor to the debtor to pay a specified amount to a person mentioned therein. The maker of a bill is called the drawer - the person who is directed to pay is called the drawee. The person who is entitled to receive payment is called the payee.


When it is drawn on a foreign firm it is termed as a foreign draft or bill of exchange. It is prepared either in an international currency or your native currency depending on the terms of contract. Accordingly, the bill is known by the name of currency in which it is drawn. For example, a bill drawn in US dollars is known a Dollar Bill and when prepared in rupees, being termed as Rupees Bill.


When the goods are shipped by sea, the bills are drawn in sets and two sets of documents including drafts are mailed to the foreign correspondent through an authorised dealer for presentation to the drawee (importer). Each one bears a reference to the other.


A bill of exchange or draft is of two types.


(i) Sight Draft or Draft atSight

(ii) Usance Draft or Usance Bill


When the drawer i.e. exporter expects the drawee i.e. importer to make payment immediately after the draft presented to him…. it is called a Sight Draft. Unless and until the draft is retired, the negotiating / collecting bank does not hand over the shipping documents and the buyer cannot take delivery of goods.


Where the exporter has agreed to give credit to the foreign buyer, he draws a Usance Bill i.e. draft is drawn for payment at a date later than the date of presentation. A draft may be drawn according to the period of credit such as 30 days sight, 60 days sight and so on, implying thereby, that the drawee i.e. importer is to retire the draft 30 days or 60 days or as the case may be after it is presented to the drawee who will retire it by writing upon it Accepted with his signature and date. Thereafter, the documents are handed over to him enabling him to take the delivery of goods.


As there is no aligned document for draft, the same can be prepared by the exporter in the usual fonnat.



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