A bill of exchange is a debt security that represents an unconditional obligation of one party (the drawer) to pay a specified amount of money to another party (the payee) either at a set time or on demand. A bill of exchange can be used as a means of payment, a form of loan, or a payment guarantee.
There are two main types of bills of exchange:
Promissory Note (simple bill): This is a written commitment by the drawer to pay the specified amount of money to the payee at a certain date.
Draft (bill of exchange): This is an order from the drawer to a third party (the drawee) to pay a specified amount of money to the payee or another named party. This type of bill requires acceptance (consent to pay) from the drawee.
Key characteristics of a bill of exchange:
Amount: The sum of money to be paid.
Payment Date: The date by which the payment must be made.
Signatures: The bill must be signed by the drawer, and in the case of a draft, also by the acceptor.
Unconditionality: The obligation under the bill is not dependent on any conditions.
