What is a bill of exchange?

A bill of exchange is a written order, or financial instrument, used to direct a person or organization to pay a specified sum of money to another person or organization at a future point in time. Bills of exchange are commonly used in international trade to make payments between parties who may be based in different countries. When, a bill of exchange applies to domestic transactions is typically referred to as a “draft” or “draught”.

Like promissory notes and checks, bills of exchange are often used as a way to make payments without using cash. This can be helpful in situations where one party may not have enough cash on hand to pay the other party or when one party wants to avoid the hassle and expense of converting currency.

What is bill of exchange in simple terms?

A bill of exchange is a written order telling one person or business to pay a specific amount of money to another at a set time. It’s basically a formal promise to pay.

What is the difference between a cheque and a bill of exchange?

A cheque is payable on demand and drawn on a bank, while a bill of exchange can be paid later and may involve any parties. Cheques are used for immediate payment; bills can be used for credit.

How do bills of exchange work?

A seller writes a bill of exchange telling the buyer to pay a certain amount on a future date. The buyer accepts it, and when the date arrives, they must pay the amount stated.

Are bills of exchange still used?

Yes, bills of exchange are still used, mainly in international trade and business-to-business transactions. However, they are less common now due to modern electronic payment systems.