How Can We Describe Bills Of Exchange?

No businessman wants to sell goods on credit to his customers who may prove unable or unwilling to pay their debts. Today, however, in every field of retail trade it appears that sales and profit can be increased by selling goods on credit basis. The manufacturers and the wholesalers sell goods mostly on credit. Credit is a very powerful instrument to promote sales, so most of the business transactions, in most business concerns, are carried out on credit basis.

A bill of exchange is method of payment used between businessmen which have certain advantages over other methods of payment. you should keep in mind the following points to understand the Bills of Exchange.

a) The individual who writes out the order to pay is known as drawer.
b) The individual for whom the bill of exchange is drawn (who is ordered to pay) is known as the drawee.
c) The drawee may 'accept' the bill. This is a special use of the word 'accept' because it means that the accepts to pay the amount payable articulated in the bill, i.e. if he accepts the compulsion to pay he writes 'accepted' across the face of the bill and signs it. From that time on he is known as the 'acceptor' of the bill and has unconditional accountability to honor the bill on the due date.

d) The amount of money must be mentioned evidently. For example, I cannot make out a bill requiring someone to pay the value of my car or house. That is an unsure sum. It must say 'Five thousand dollars or ten thousand dollars'.
e) The time must be predetermined or at least be determinable. For example, '60 days after date' is quite easily determinable. If the bill is made out on 1st July, it will be 29th August.

The bill of exchange is a method or instruments of making foreign payments.The bill of exchange is a most effective instrument in making international payments.A bill of exchange is an order in righting from the drawer(creditor) to the drawee(debtor) to pay the specified sum of money on demand or on some specified future date(usually three months).The creditor can discount the bill of exchange from his hanker for an amount less than its face value.The margin between the face value and the amount paid,by the bank is termed  as banks discount.The mechanism of foreign bill of exchange assumes that each international payment in one direction is matched by the equal payment in the deposited direction.