Bills of exchange is an instrument in writing, containing an unconditional order signed by the maker, directing a certain person to pay a certain sum of money, only to or to the order of certain person or to the bearer of the instrument.
Advantages of bills of exchange are that it facilitates purchase of goods on credit, holder has the advantage of discounting facility, it can be easily transferred etc.
Parties to a bill of exchange are drawer, drawee and payee.
Drawer is the person who sells the goods on credit, draws the bill and signs it.
Drawee or acceptor is the person who purchases goods on credit, accepts the bills and makes the payment on due date. Payee is the person to whom payment is made on due date.
Payee may be drawer himself or a third party.
Promissory note is an instrument in writing containing an unconditional undertaking signed by the maker to pay a certain sum of money only to or to the order of certain person or to the bearer of the instrument.
There are two parties to a promissory note maker or drawer and drawee or payee.
Maker or drawer is the person who writes or draws promissory note and signs it.
Drawee or payee is the person who is entitled to receive the payment.
Distinction can be made between bills of exchange and promissory note on the basis of several points like number of parties, requirement of acceptance, etc.
Different types of bills are bill at sight, bill after sight, bill after date, accommodation bill, documentary bill, inland bill and foreign bill.
Honour of a bill implies that payment is made on due date by the drawee.
The drawer has four options to deal with the bill viz. retain the bill till the date of maturity, discount the bill with the bank, endorse the bill in favour of a creditor or send the bill for collection.
Days of grace are three extra days added to the period of bill.
Retiring a bill is a situation in which the drawee makes the payment of the bill before its maturity.