A bill of exchange is a written document where one person promises to pay a fixed amount of money to another person at a certain date or on demand. It works like an agreement between three parties — the person who makes the bill (drawer), the person who has to pay (drawee), and the person who will receive the money (payee). It is mostly used in business deals, especially when goods are bought on credit.
This document ensures that the seller will receive payment in the future and gives legal protection if the buyer doesn't pay. A bill of exchange can be transferred to someone else, like a cheque, and is commonly used in trade, banking, and finance.
FAQs about Bill of Exchange.
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1. What is a bill of exchange?
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It's a written promise that one person will pay a specific amount to another on a certain date or when asked.
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2. Is it the same as a cheque?
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Not exactly. A cheque is always payable on demand and drawn on a bank. A bill of exchange can be used between any two people or businesses and may be payable at a future date.
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3. Who prepares the bill?
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Usually, the seller (called the drawer) prepares it and sends it to the buyer (drawee) for acceptance.
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4. Can I use it in a personal deal?
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Yes, if you're lending or selling something and want a formal promise of payment.
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5. Is a bill of exchange legally binding?
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Yes. Once accepted, it becomes a legal obligation to pay.
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6. What happens if the payment is not made?
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The person holding the bill can take legal action to recover the money.
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7. Can I give it to someone else to collect money?
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Yes, a bill of exchange can be transferred to another person.
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8. Is interest included?
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It depends on the agreement. Sometimes interest is added for late payments.
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9. Can I cancel a bill of exchange?
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Only before it is accepted. After that, both parties must agree to cancel it.
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10. Where is it mostly used?
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It's commonly used in trade, especially when goods are sold on credit.
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11. What is "acceptance" in a bill of exchange?
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When the buyer signs the bill agreeing to pay, it's called acceptance.
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12. What is the difference between drawer and drawee?
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Drawer is the person who writes the bill (usually the seller), and the drawee is the person who has to pay (usually the buyer).
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13. What is the role of the payee?
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The payee is the one who will receive the money — sometimes the drawer and payee are the same.
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14. Can a bank be involved?
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Yes, banks often handle bills of exchange, especially in business transactions.
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15. What is the maturity date?
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It's the final date by which the payment must be made.
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16. Can the amount be changed after signing?
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No. Once signed and accepted, changes are not allowed unless agreed in writing.
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17. Do I need a lawyer to use a bill of exchange?
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No, but for large or important transactions, legal advice can help.
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18. Is stamp paper needed?
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Yes, in India, stamp duty must be paid depending on the value of the bill.
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19. What is a dishonoured bill?
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When the person refuses to pay or accept the bill, it is considered dishonoured.
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20. Can I file a police complaint if someone doesn't pay?
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It's a civil issue, not criminal. You can file a legal case in court to recover the money.
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