Bill of Exchange

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What is a Bill of Exchange?

A bill of exchange is a written agreement that instructs one party to pay a fixed amount of money to another, either on demand or at a specified future date. It formalises the payment arrangement and provides security by legally binding the parties involved.

The drawer, usually the seller or service provider, issues the bill and directs the drawee, typically the buyer, to pay the specified amount. Once the drawee agrees to the terms, they become the acceptor. The payee is the party who receives the payment, often the same as the drawer, but it can also be a third party.

Roles and Responsibilities

Each party involved in a bill of exchange has a clear role. The drawer creates and issues the bill. The drawee is expected to pay the stated amount and becomes legally bound to do so once the bill is accepted. The payee is the party entitled to receive the funds. While often the same as the drawer, the payee may also be a separate beneficiary.

The act of acceptance by the drawee turns a proposed payment into a binding commitment, which is essential for ensuring reliability in trade transactions.

Types of Bills

  • Demand bill: payable upon presentation, with no fixed due date

  • Term bill: payable after a set period, starting from the date of issue or acceptance


Each type serves different transaction needs and offers flexibility depending on the payment terms agreed.