Definition

Noun: A formal, written, and unconditional order from one party (the drawer) to another (the drawee) to pay a specified sum of money to a third party (the payee) either immediately or at a fixed future date. It is a key financial instrument used in commerce to facilitate payment, especially in international trade.

Usage

A bill of exchange is used as a secure method of payment and credit. The drawer creates the document, ordering the drawee (who owes the drawer money) to pay the payee. It must be accepted (signed) by the drawee to become valid. It is distinct from a simple invoice or bill, as it is a legally enforceable order for payment.

Examples

• The exporter used a bill of exchange to ensure payment from the overseas buyer.
• The bill of exchange was drawn on the importer's bank and payable 90 days after sight.
• Upon acceptance, the bill of exchange became a negotiable instrument that could be discounted at a bank.

Advanced Usage

• Trade Acceptance: A specific type of bill of exchange arising from a sale of goods, where the drawee is the buyer who writes "Accepted" on the document, creating a formal promise to pay.
• Banker's Acceptance: When a bank accepts a bill of exchange, guaranteeing its payment. This makes the instrument more secure and easily tradable in financial markets.
• "To honor a bill of exchange": To pay the amount when it becomes due.
• "To dishonor a bill of exchange": To fail to pay or accept the bill when required.

Variants and Related Words

• Draft: A common synonym for a bill of exchange, often used interchangeably.
• Promissory Note: A related but different financial instrument. It is an unconditional promise (not an order) made by one party to pay another.
• Check (or Cheque): A specific type of bill of exchange that is always drawn on a bank and payable on demand.

Synonyms

• Draft
• Order of payment

Related Phrases

• Sight Bill: A bill of exchange payable immediately upon presentation to the drawee.
• Time Bill (or Usance Bill): A bill of exchange payable at a specified future date (e.g., 30, 60, or 90 days after sight or after date).
• To draw a bill: To create and issue a bill of exchange.

Noun

1. a document ordering the payment of money; drawn by one person or bank on another