What is a Bill of Exchange used for?

The Bills of Exchange (BoE) format is used in global trade as a convenient method for collecting payments from businesses internationally and can be used to finance global trade as well as obtain credit when discounted with a financial institution. Although a Bill of Exchange format is not a contract, the parties involved use it to document the terms of a transaction, including credit terms and interest rates.  According to the Bills of Exchange Act 1882, a Bill of Exchange is a negotiable instrument: An unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand, or at a fixed or determinable future time, a certain sum in money to, or to the order of, a specified person, or to bearer. When products have been shipped, the exporter ‘draws’ the Bill of Exchange on the importer or the importer’s bank. The exporter will provide a set of shipping documentation, including the Bill of Lading to their bank (remitting bank). The remitting bank will then pass them on to the importer’s bank (collecting bank). The importer’s bank (collecting bank) will then present the Bill of Exchange to the importer requesting them to accept or pay the Bill.

How to create a Bill of Exchange

1. Open IncoDocs

   Open IncoDocs in your browser and navigate to the “Export Docs” section.

2. Choose the Bill of Exchange template

   Click on 'New document set' and select the Bill of Exchange template along with any other export documents you wish to create.

3. Fill out & customize your doc

   Fill out the document, customize template fields to your needs and add your company letterhead. To save time and prevent re-entry errors, enter key shipment data into the Master File to have it sync across all other documents in your set automatically.

4. Sign & seal

   Click on the signature box at the bottom of your document to create and place a digital signature then hit “Save & Quit”. On the document preview screen, click on the ‘More’ dropdown button and select “Add company seal” to place a digital stamp.

5. Download or share

   Download or share documents from IncoDocs in 1-click. Documents can be downloaded as PDF or CSV which can be imported into other systems without manual re-entry.

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Your questions, answered.

What are the different types of Bills of Exchange used?

There are several types of Bills of Exchange that are used:

The exporter may allow the funds to be paid at a later date (after the importer has received the goods) to give the importer more time to receive the goods before making the payment.

What is ‘Documents Against Acceptance’ and ‘Documents Against Payment’?

If the importer receives the shipping documents on ‘acceptance’ of the Bill, this is called Documents Against Acceptance. If the importer receives the shipping documents after payment has been made, this is called Documents Against Payment.

Once the buyer has accepted or paid the Bill, the collecting bank will release the shipping documents and the original Bill of Lading, which allows the importer to obtain ownership of the cargo. If the collecting bank releases the shipping documents to the buyer without received acceptance or payment from the buyer then the bank will become liable.

How is a Bill of Exchange different from promissory note?

A Bill of Exchange and a Promissory Note might seem similar, but they have important differences. A Bill of Exchange is issued by the seller (creditor) and orders the buyer (debtor) to pay a specific amount. It usually involves three parties: the drawer (seller), the drawee (buyer), and the payee (who receives the payment, often the seller). Bills of Exchange are common in international trade to ensure payment for goods and services and can be endorsed to others, making them a flexible payment tool.

In contrast, a Promissory Note is issued by the buyer (debtor) and is a promise to pay a specific amount to the seller (creditor). It involves two parties: the maker (buyer) and the payee (seller). Promissory Notes are often used in loans and personal transactions and are generally not transferable; they stay between the original parties.

Key Differences:

How is a Bill of Exchange Different from a Check?

A check is a type of Bill of Exchange. However, there are key differences between the two. A check is always drawn on a bank and payable on demand. It is a simple order from the bank's customer to the bank to pay a specific amount to a person or entity. A Bill of Exchange, on the other hand, can be drawn on anyone, including a bank, and is not necessarily payable on demand. It requires acceptance from the drawee before payment can be made, which is not required for a check.

What information is included on a Bill of Exchange Document?

It’s important that enough detail is provided on the Bill of Exchange to avoid any issues or misunderstandings between all parties involved in the process.

The details to be included on a Bill of Exchange document: