What Are Accommodation Bills?

Generally a bill of exchange is drawn by a creditor on his debtor to settle a trade debt. A creditor is a person who has sold goods on credit basis and a debtor is a person who has purchased goods on credit basis. Thus, a bill which is drawn by a creditor and accepted by a debtor is known as a trade bill of exchange.On the other hand, a bill of exchange which is drawn to oblige a friend or to give him a temporary assistance or to provide him a loan or to accommodate one or more parties is called 'an accommodation bill'.


Such a bill is drawn and accepted without any sale and purchase of goods, as the bill is drawn to fulfill the temporary need of money so there is no question of retaining this bill by the drawer until the due date. The bill will be discounted and cash will be received immediately. The drawer before maturity date is required to povide the acceptor with funds so that he may meet his acceptance on the due date.

It can be explained with the help of an example. Let us suppose A is in need of money, he approaches his friend B and asks him to give him a loan of US $ 5,000. B also shows his inability but agrees that he will accept a bill of exchange, A draws a bill on B which he accepts at 3 months. A discount the bill with his bank and gets the money. After three months but before the due date, A send US $ 5,000 to B in order to meet his acceptance. B receives the amount and pays his acceptance.