Bill Market & Commercial Bills

Introduction

The Bill Market deals with Bills of Exchange. It is a sub-market of the Money Market where short-term trade bills are bought and sold (discounted).

1. What is a Commercial Bill?

It is a negotiable instrument drawn by a seller (Drawer) on the buyer (Drawee) for the value of goods sold on credit.

• Parties: Drawer (Seller), Drawee (Buyer), Payee (Bank/Seller).
• Mechanism:
  1. A sells goods to B on credit (3 months).
  2. A draws a bill. B accepts it.
  3. A needs money now. A goes to his Bank.
  4. Bank "Discounts" the bill (Pays A ₹98 instead of ₹100).
  5. On maturity, Bank collects ₹100 from B.

2. Types of Bills

A. Demand vs Usance Bills

• Demand Bill: Payable immediately "on demand" or presentation. No fixed maturity.
• Usance Bill: Payable after a fixed period (e.g., 90 days). Needs "Acceptance".

B. Clean vs Documentary Bills

• Clean Bill: No documents attached. Rely only on creditworthiness.
• Documentary Bill: Commercial documents (Railway Receipt, Lorry Receipt, Invoice) are delivered only against payment (D/P) or acceptance (D/A).

C. Inland vs Foreign Bills

• Inland: Drawn and payable within India.
• Foreign: Drawn in one country, payable in another.

3. Importance

• Self-Liquidating: The bill is backed by genuine trade. When goods are sold by the buyer, he pays back.
• Liquidity: Sellers get immediate cash via discounting.

Summary

• Instrument: Bill of Exchange.
• Process: Discounting (Selling bill to bank for cash).
• Types: Demand (Now) vs Usance (Later).

Quiz Time! 🎯

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