Bills of Exchange – According to the Negotiable Instruments Act, 1881, “A Bill of Exchange 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 order of, a certain person or to the bearer of the instrument.”
Features of Bill of Exchange
- A bill must always be in writing.
- A bill is unconditional, i.e., there is no condition attached to it.
- A bill is an order letter. It is drawn by the creditor on the debtor and it is in the form of an order and not a request.
- A bill must be signed by the drawer as well as the drawee.
- A bill is drawn in the form of an order to pay a fixed sum of money.
- A bill is payable to the person specified therein, or to the order of the specified person or to the bearer as the case may be.
- A bill of exchange is payable either on demand or after the expiry of the specified duration.
- A bill of exchange should be properly stamped.
- It is preferable to write “the value in the bill has been received” on the face of the bill , even though it is not required by law.
Advantages of Bills of Exchange
(1) Helpful in the purchase and sale of goods on credit – A bill of exchange serves as a written evidence of debt. It is a proof that the purchaser of goods ( or the acceptor of the bill ) owes the amount written in it. As such the goods can be sold on credit without difficulty.
(2) Legal Document – It is a valid document in the eyes of law. If the drawee fails to make its payment, it would be easier to recover the amount legally in comparison to a verbal promise.
(3) Discounting Facility – The holder of a bill need not wait till the due date of | the bill to receive its payment as he can easily turn it into cash by discounting it from the bank before its due date.
(4) Endorsement Possible – A bill of exchange can be easily transfered from one person to another in settlement of debts as it is a negotiable instrument.
(5) Relief from sending reminders – The seller need not approach the purchaser time and again to demand the payment because the date of payment is fixed and written on the bill of exchange.
(6) Helpful in planning cash operations – The seller knows the time when he would receive the money and, as such, he can plan his cash operations accordingly.
(7) Convenient means of making foreign payment – Bills of Exchange enable the firms to receive and make payments in case of foreign trade also. It avoids the trouble and risk of transmitting the foreign currency from one place to another.
(8) Saving of money in circulation – A bill of exchange performs the functions of money . By making payment through bills, the money in circulation will not be used and hence results in the saving of wear and tear in the currency in circulation .
(9) Convenience for the purchaser – By accepting a bill, a purchaser gets time to make the payment . As such, he can purchase more goods and increase his business. Moreover, he cannot be called upon to make the payment at a date earlier than the one fixed in the bill .