Bill of exchange: definition, types, details
What is a bill of exchange?
Promissory note (from German Wechsel - exchange) is security and is a debt obligation made in writing and in a strictly prescribed form. The owner of the bill, otherwise known as the billholder, has the indisputable right to demand payment of the amount specified in the bill after the expiration of the term specified in the bill.
What is the essence of a bill of exchange?
A bill of exchange is essentially a debt security. It can only be presented in documentary form, that is, it is drawn up on paper according to all the rules. A promissory note is issued in pieces, it is a non-issue security.
Why do I need a bill of exchange?
In international trade transactions, the bill of exchange is one of the main elements in settlements and lending.
What is the difference between a bill of exchange and a bond?
The difference between a bill of exchange and bonds is based on differences based on the specific forms of their existence as securities:
- A bond is essentially an issuance paper, while a promissory note is more individual in nature (although one can also find promissory notes issued in large batches in the market);
- the issue of bonds is subject to mandatory registration by the state, while promissory notes are not;
- The bill of exchange can be used as a means of payment and settlement, while settlement with bonds is not allowed;
- a bond is sold under a contract of sale, and a promissory note is transferred by order of its owner, etc.
Unlike stocks and bonds, a bill of exchange can exist only in documentary (paper) form.
What kinds of bills of exchange?
At present, the simple and transferable (drafts) types of bills of exchange are used:
- Promissory note - is a financial document written out and signed personally by the debtor.
- Bill of exchange (draft) - A financial document issued and signed by the creditor (drawee) ordering the debtor (drawee) to pay a third party (remittent) an amount within a specified period of time.
What are the requisites of a bill of exchange?
- The form of a promissory note is defined by the 1930 Geneva Convention on Bills of Exchange and requires obligatory requisites:
- the presence of the term "promissory note" in the text of the document;
- existence of a strict obligation (order) to pay the designated amount;
- designation of the payer (the first holder);
- the designation of the remittance;
- strictly designated place and time of payment;
- place and date of issue of the promissory note;
- signature of the debtor (drawer of the bill).
Example of a promissory note
