Bills of Exchange – The Payment Tool! 💸
Scenario:
- Exporter (India) sends goods.
- Importer (USA) says "I will pay later."
- Exporter: "I don't trust you. Sign this paper promising to pay."
Definition: An unconditional order in writing, addressed by one person to another, requiring the person to pay a certain sum of money.
Parties Involved 👥
Drawer (Exporter)"Makes the Bill"
↓
Drawee (Importer)"Accepts to Pay"
↓
Payee (Bank)"Receives the Money"
Types of Bills 📜
1. Sight Bill (Demand Bill) 👀
- Rule: "Pay me as soon as you SEE this bill."
- Payment: Immediate (Cash against Documents).
2. Usance Bill (Time Bill) ⏳
- Rule: "Pay me 90 days after seeing this bill."
- Payment: Credit period given.
- Process: Importer signs "Accepted", takes the documents, sells the goods, and pays after 90 days.
3. Clean Bill vs Documentary Bill
- Clean Bill: Just the bill (No shipping docs). Rare.
- Documentary Bill: Bill + B/L + Invoice + Insurance. (Standard).
- D/A (Documents against Acceptance): Sign -> Get Docs -> Pay Later.
- D/P (Documents against Payment): Pay Now -> Get Docs.
Discounting the Bill
If Exporter has a Usance Bill (90 days) but needs money NOW: He goes to his Bank. Bank buys the bill for a small fee (Discount) and gives cash immediately. Bank collects from Importer after 90 days.
Quiz Time! 🎯
Test Your Knowledge
Question 1 of 5
1. Who draws (makes) the Bill of Exchange?
💡 Final Wisdom: "A Bill of Exchange turns a 'Promise' into a 'Tradable Asset'. It is the currency of international trade." 💱
Next up: Customs Invoice - Satisfying the Taxman! 👮♂️