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Bills of Exchange

The function of the Bill of Exchange in International Trade:

The Bill of Exchange performs many functions in international trade including: Facilitates the granting of trade credit in a legal format by permitting payments on agreed future dates. Provides formal evidence of the demand for payment from a seller to a buyer. Provides the seller with access to finance by permitting them to transfer their debts to a bank or other financier by merely endorsing the Bill of Exchange to that bank or financier. Permits the banker or financier to retain a valid legal claim on both the buyer and the seller. In certain circumstances a bank or financier may have a stronger legal claim under a Bill than the party that sold them the debt. Permits a seller to obtain greater security over the payment by enabling a bank to guarantee a drawee's acceptance (guarantee to pay on the due date) by signing or endorsing the Bill. (See Guaranteed Bills of Exchange below) Allows a seller protect their access to the legal system in the event of problems, while providing easier access to that legal system.

How the Bill of Exchange is used in international trade: A Bill of Exchange can either be payable immediately or at some future date. If a Bill is payable immediately, it is usually issued payable at sight. The term "at sight" means that a buyer should pay once they have sighted the Bill, that is once the demand for payment has been made. If a Bill is payable at some future date, it must facilitate the calculation of the actual due date. For example Bills of Exchange may be drawn payable at 60 days sight, at 60 days from Bill of Lading Date etc.

Banks should be used as agents for the collection of the Bill. Visit our section on Documentary Collections in the Products and Services or Product Diagrams area of this website for further details. Guaranteed Bills of Exchange: To provide greater payment security a seller may look to have a Bill of Exchange guaranteed by a buyer's bank. A guaranteed Bill of Exchange is one drawn on and accepted by the buyer and to which, the buyer's bank has added its guarantee that the Bill will be paid at maturity. The security to a seller comes from a bank giving an undertaking to effect payment on a certain date regardless of the financial standing of a buyer on that date.

What is a Bill of Exchange?

A Bill of Exchange is one of the key financial instruments in International Trade. The laws regulating Bills of Exchange in different countries come under two 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 calleddraft.

Definition of 'Bill Of Exchange'

A non-interest-bearing written order used primarily in international trade that binds one party to pay a fixed sum of money to another party at a predetermined future date.

There are two kinds of bills: Inland Bill: An inland bill is one which is (i) drawn and payable in India or (ii) drawn in India upon some person resident in India even though it is made payable in a foreign country. Thus in an inland bill of exchange both drawer and drawee belong to the same country. Foreign Bill: A foreign bill is one which is drawn in one country and payable in another country. Foreign bills are drawn in a set of three and each part of the set called a via contains a reference to the other parts. This is done to avoid delay or loss or miscarriage during the transit.