Bill Of Exchange Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of Bill Of Exchange, written in plain English, along with examples of how it is used.
What is Bill Of Exchange?
(n) Bill of Exchange is the financial instrument drawn by a party on another person or entity to pay the amount payable as per that instrument to the drawer or such third parties named in that document. A check is a bill of exchanges drawn upon a banker
History and Meaning of Bill of Exchange
A bill of exchange is a legal document that allows for the transfer of money between two parties. It originated in medieval Europe as a means of facilitating trade between merchants. The merchant would write a bill of exchange to a supplier for goods they wanted to purchase. The supplier could then present the bill of exchange to a bank or other financial institution for payment. Bills of exchange were also used by traders and merchants to finance long journeys, as they could be cashed in at various banks along the way.
Today, bills of exchange are still used in international trade as a way for importers and exporters to settle transactions. They are also commonly used in commercial transactions between companies.
Examples of Bill of Exchange
A company in the United States orders goods from a supplier in China. The supplier draws up a bill of exchange for the amount owed, which the US company agrees to pay. The bill of exchange is sent to the US company's bank, which pays the amount owed to the Chinese supplier.
A small business owner needs to purchase inventory for their store. They write a bill of exchange to their supplier for the amount owed, which the supplier can then cash in at their bank.
An individual loans money to their friend, but instead of giving them cash, they write a bill of exchange for the amount owed. The friend can then cash in the bill of exchange at their bank.
Legal Terms Similar to Bill of Exchange
- Promissory note: Similar to a bill of exchange, a promissory note is a written promise to pay a certain amount of money to a named individual or entity.
- Cheque: A cheque is a bill of exchange drawn on a bank, typically used as a form of payment for goods or services.
- Money order: A money order is a payment order for a pre-specified amount of money that can be used as a safe alternative to cash or personal cheques.