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.