What is the Bill of Exchange, Its Importance, Types, Features & Advantages?

As businesses grow their operations internationally, they come through different challenges involving the requirement to control financial transactions successfully. One of the necessary financial instruments employed in global trade is a bill of exchange. So, in this post, we will explore in detail the types of bill of exchange (BoE), their significance, features, how they work and also about their advantages.

Definition of Bill of Exchange

It is a drafted order from one party, i.e., the drawer, to another party, i.e., the drawee, to reimburse a particular amount of cash on demand or at a fixed date. The document is generally used in global trade transactions, letting one party make a payment in their national currency, whereas the other party gets payment in their individual currency.

Working Process of Bill of Exchange

A BoE is a written order inscribed by one person to another, marked by the individual offering it. Thus, needing the individual to whom it is asked to pay on demand or at a set time, a fixed amount of money to a particular person.

Significance of Bill of Exchange

1. It is a valuable financial tool used in global trade. It is an explicit document between two parties that plans out the transaction terms.

2. Various types of bills of exchange offer a payment mode, safety, and payment surety to both the seller and buyer.

3. It is also an authorized document that can be shown in court as proof of an agreement.

4. It can also be furnished as a source of credit and assists in facilitating the fund transfer between two parties.

5. By employing it, traders can run the business without requiring any cash.

6. Banking has seen a prominent change. From conventional banking to neo-banking, the innovation of the fintech world has had an important effect on businesses today.

Different Types of Bill of Exchange

There are 9 types of bills of exchange, which are discussed below:

1. Demand Bills

Bills that do not include a particular payment date and can be payable on demand are known as demand bills.

2. Documentary Bills

This bill of exchange belongs to documents that check that the transaction occurs for which money is payable.

3. Foreign Bills

These types of bills of exchange can be reimbursed out of the country. These bills of exchange are generally used for global trade.

4. Inland Bills

Inland bills are bills drawn and honored in one country. This bill is different from the foreign bill.

5. Supply Bills

It is a bill of exchange that a contractor or supplier draws back from the government.

6. Usance Bills

In these types of bill of exchange, bills include a particular date and time of payment.

7. Accommodation Bills

A bill of exchange that is accepted and drawn without any condition is known as an accommodation bill.

8. Trade Bills

Trade bills are bills of exchange used in the trade business. This bill of exchange occurs between a buyer and seller to allow the buyer to buy on credit.

9. Clean Bills

These bills of exchange are not backed by documentary proof. As such, they bear an increased rate of interest in comparison to different bills.

Essential Features of Bill of Exchange

Let us consider some essential features of the bill of exchange.

  • It is a lawfully necessary document that orders one person or party to pay a fixed amount of money to other party.
  • It includes the names and addresses of the parties concerned, the sum of money to be paid, the payment date, and details of the products or services being traded or exchanged.
  • It is countersigned by both parties to support the transaction.
  • It can be drawn in any country’s currency and is normally resolved in the currency of the country in which it was circulated.
  • It is also interchangeable and can be sanctioned to another party.
  • It also furnishes as an assurance of payment and is normally backed by a promissory note.
  • If it is not recompensed on the due date, the holder can take legit action to invoke the payment.

Important Advantages of a Bill of Exchange

Formulating a bill of exchange has its individual set of benefits. These benefits are as follows:

1. Protects payment

The bill of exchange assures that the creditor will compensate the debtor. It sets out as a security net for businesses or people to whom money is due. Furthermore, when a particular date is specified, debtors can ask for payment by that date and take care of their cash flow needs.

2. It Can be Discounted for Quick Funding

The bill of exchange gives a discounting convenience where debtors can convert the bill with a 3rd party on some discount. They get quick funds without looking or waiting for the bill’s mentioned date. Furthermore, the 3rd party gives a discounted amount and can get the bill cleared at the actual amount, thereby gaining a profit in the procedure.

3. Can be Approved or Endorsed

The bill can be endorsed in the individual’s name if you incur another individual. These endorsements let businesses to reduce their present debts.

4. Easily Issued

The bill of exchange can be simply drawn and transferred to the creditor for approval. There is a simple bill of exchange layout that drawers may employ for drawing bills.

5. Involves Legal Integrity

The bill is a legal certificate or document that authorizes the drawee to remunerate the particular sum on demand or at the mentioned date. In the condition of a failure, the drawer can take legal action next to the drawee.


Now, it is clear that different types of bills of exchange work as a significant tool in order to bring out trade transactions. It is a safety document that gives assurance of payment, as the regulations linked to this tool are particularly prescribed in the Negotiable Instruments Act. Therefore, a bill of exchange plays a big role in carrying out a credit payment system and performs as an alternative for money[a][b].