Bill of Exchange - A brief tutorial

The information provided here is part of Online Export Import course 

Bill of Exchange

In this article, let me explain about Bill of Exchange.   What is bill of exchange? How to define Bill of Exchange? Who are the parties involved in a Bill of Exchange?  How many types of Bill of exchange are there?


 Bill of ExchangeThe Negotiable Instruments Act, 1881 defines a Bill of Exchange as “ an instrument in writing containing an unconditional undertaking, 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”.

There are five important parties to a Bill of Exchange:

The Drawer: The drawer is the person who has issued the bill. In an export transaction, exporter draws the bill as money is owed to him.

The Drawee: The drawer is the person on whom the bill is drawn. Exporter draws the bill on the importer who is the drawee.  Drawee is the debtor who owes money the exporter (creditor).

The Payee: The payee is the person to whom the money is payable. The bill can be drawn by the exporter payable to the drawer (himself) or his banker.

The Endorser: The endorser is the person who has placed his signature on the back of bill signifying that he has obtained the title for the bill on his own account or on account of the original payee.

The Endorsee: The endorsee is the person to whom the bill is endorsed. The endorsee can obtain the payment form the drawer.


Types of Bill of Exchange

(a)  Sight Bill of Exchange: In this Bill of Exchange, also known as demand Bill of Exchange, the drawee has to make the payment, on presentation.

(b) Usance Bill of Exchange: In case of Usance or Time Bill of Exchange, payment  is to be made on the maturity date, after a certain period, known as tenor. When the calculation of period is made with reference to the sight of bill, the bill is known as ‘ after sight usance bill’. Sometimes, the maturity date is calculated with reference to the date of bill of exchange, it is known as ‘after date usance bill’.

(c)  Clean Bill or Exchange: A clean Bill of Exchange is one when the relative shipping documents do not accompany with it. In this case, the relative shipping documents i.e. Bill of Lading is sent directly to the importer to enable him to take delivery of the cargo.

(d) Documentary Bill of Exchange: A documentary Bill of Exchange is one where the relative shipping documents such as Bill of Lading, marine insurance policy, invoice and other documents are sent along with the Bill of Exchange. This is the common form in export trade.

The documents are given the bank either for collection or negotiation. In case the importer gets the documents on acceptance, it is called Documents against Acceptance. If the importer gets the documents only on payment, it is called Documents against Payment.

After shipment of goods, the exporter draws the bill on the importer or, more frequently, on bank acting for the importer, as agreed between the exporter and importer. The exporter usually draws the bill to his own order or that of his bank. Later, he endorses the bill in favor of his bank. Exporter may request his bank to collect or purchase the bill. In case of purchase of bill, exporter receives the exports proceeds immediately. In any case, the exporter’s bank sends the documents to its branch or correspondent’s bank in importers place. The bank at that end sends the intimation of receipt of documents to the importer either for acceptance or payment, dependent on the nature of bill drawn. In case of Documents Against acceptance, importer accepts the bill and then only gets title to goods. In case of Documents against payment, importer has to make the payment for securing delivery of documents.


We have discussed about Bill of Exchange and its functions,  What is bill of exchange? How to define Bill of Exchange? Who are the parties involved in a Bill of Exchange?  How many types of Bill of exchange are there? 


Have you satisfied this article about Bill of Exchange.  Would  you like to add more information  about Bill of Exchange? Share your experience in handling Bill of exchange in business.


Comment below your thoughts about this article – Tutorial about Bill of Exchange.


The above information is a part of Export Import Online Tutorial


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Himansu: Actually in written we can't observe clearly about bill of Exchange without having a practical knowledge . If you can any Book of particular bill of exchange & Lc documentary and many more which are related to Export & Import. Please provide me Thanks

Farook Hossain: what is UPAS letter of credit ?

balraj: Dear sir, So far I have not used BOE, we are using documentary credit. The BOE is same as DC LC, please explain me whether BOE and LC are same if not explain me the difference.

Surendran Kollerath: Hi Farook Hossain, Pl read my recent article about UPAS letter of credit

HAMMAD: Dear Sir, If an exporter in one country (SAY COUNTRY -A) Presents documents with his banker along with BOE (Payment term 60 days from B/L date) , and suppose on maturity Importer will not pay , how BOE protects exporter?

Prakash Singh: kindly explain briefly about all types of LC's in import & export trade.

sureshan: Dear Sir, please help me on below 1-i am working with one FF company 2-one of our regular client got expired their import licence 3-now they wanted to bring their shipment in our name as we have import licence 4-in this situation our client how they will open LC in their name since they dont have import licence


Bimalendu Bhattacharya: Is a bill under an inland LC presented without bill of exchange valid document? Is bill of exchange is mandatory in bill drawn under Inland LC?

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