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Bill of Exchange

Shyamsundar (Accounts - Executive) (28 Points)

28 June 2010

what is the meaning and purposes of issuing bill of exchange

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4 Replies

RAMESH KUMAR VERMA ( CS PURSUING ) (43853 Points)
Replied 28 June 2010

(Point I)

Bill of exchange is A written, unconditional order by one party (the drawer) to another (the drawee) to pay a certain sum, either immediately (the sight bill) or on a fixed date (the term bill), for payment of goods and/or services received. The drawee accepts the bill by signing it, thus converting it into a post-dated check and a binding contract. It is also called a draft but, while all drafts are negotiable instruments, only 'to order' bills of exchange can be negotiated. According to the 1930 'convention providing a uniform law for bills of exchange and promissory notes' held in Geneva (also called Geneva Convention)

A BOE CONTAINS: (1) the term 'bill of exchange' inserted in the body of the instrument and expressed in the language employed in drawing up the instrument. (2) an unconditional order to pay a determinate sum of money. (3) the name of the person who is to pay (drawee). (4) a statement of the time of payment. (5) a statement of the place where payment is to be made. (6) the name of the person to whom or to whose order payment is to be made. (7) a statement of the date and of the place where the bill is issued. (8) the signature of the person who issues the bill (drawer). Boe is the most often used form of payment in local and international trade, and has a long history-as long as that of writing (which was invented by accountants for recording trade transactions) going back over 5,000 years.

(Point II)

The bill of exchange, is signed by the drawer (the seller) to the drawee (the confirming bank), requiring the drawee to pay the drawer a certain sum of money at sight or at a fixed or determinable future time.

The BoE (or it's also called a draft) is widely used in international trade, typically in payment against a letter of credit (L/C). The good thing is that it's transferrable.

Lakshmi (Student) (1836 Points)
Replied 28 June 2010

Meaning:

An unconditional order issued by a person or business which directs the recipient to pay a fixed sum of money to a third party at a future date. The future date may be either fixed or negotiable. A bill of exchange must be in writing and signed and dated. also called draft.

Definition according to Section 4 of The Negotiable Instrument Act 1881 "A Bof E 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 orderof certain person to the bearer of the instrument."

Purpose:

The BoE (or it's also called a draft) is widely used in international trade, typically in payment against a letter of credit (L/C). The good thing is that it's transferrable

Kashvi (CS) (231 Points)
Replied 29 June 2010

firstly dont worry bout BOEs coz though the term looks so technical...its just another simple concept of trade...

the basic thing u need 2 know about a BOE is that it carries the purpose of acknowledgement of payment for a consideration recvd...n that it allows to make payment after a certain number of days or months...so...it is always beneficial for traders in d sense dat one can purchase goods and wait for the sales to happen so dat dere is no pressure for payment in hurry...

again BOEs r valid evidence of d happening of a transaction...de r well recognized and can be d basis for suing someone in case of non payment...thats y they r considered a comfortable instrument of trade.

thats the main practical concept around a BOE....u can always refer 2 books for theoretical queries