Advantages of Bill of Exchange

Advantages of Bill of Exchange: According to the Section 5 of the Negotiable Instruments Act, 1881, a bill of exchange is an instrument which is recorded in writing and which contains an unconditional order, which is signed by the maker, guiding someone in particular to pay a specific total amount of money just to, or to the order of, someone in particular, or to the bearer of the instrument.

Example; On 1.5.2011, Paras sold some goods to Harsh on credit for Rs.2,500. Paras drew a bill for the same sum for two months and sent it to Harsh for his acceptance on the same day. On 5.5.2011 Paras got the acceptance of Harsh. For this situation, before 5.5.2011 it was known as a simple draft. It turned into a bill of exchange only on 5.5.2011 when Harsh accepted the bill.

The bills of exchange are used much of the time in business as an instrument of credit because it offers various benefits to its users. These are some of the advantages of bill of exchange:

  • Legal Relationship between creditor and debtor: Issuing bills of exchange gives a structure which converts and sets up a lawful relationship between creditor and debtor. In case of refusal of making the payment by the debtor, the law requires the creditor to get a certificate from the Notary to make it a definitive proof of the occurrence.
  • Terms and conditions of the payment: Bill of exchange contains all the terms and conditions of payments viz., total amount of the bill, date of payment or any installments, place of the payment or any installment, any interest that has to be paid. The maturity date of the bill is additionally known to the parties of the bill so they can make essential course of action for the arrangement of funds.
  • Convenience on the means of credit: The bill of exchange has been characterized as a negotiable instrument under the Negotiable Instruments Act, 1881. According to the bill of exchange, the buyer can purchase the goods on credit and pay after the period of credit. If there is an urgency, the drawer can likewise get the payment through discounting the bill from the bank and without waiting for the maturity period.

  • Transferability is easy: Bill of exchange can be utilized for settling the debt of the creditors. Simple delivery and endorsement of the bill of exchange give a valid title to the endorsee.
  • Acceptance: If there arises an occurrence of a foreign bill, wider acceptance would be given to the parties through which payments can be received easily without any problem.
  • Mutual accommodation of the parties: Some of the time, bills can be given for mutually accommodating the parties so that money related assistance can be given to one another.

Thus, a business organisation generally makes credit sales to its buyers in order to increase revenue by attracting more customers. The advantages of bill of exchange makes it a very convenient instrument to ensure that the debtor pays the money as it is legally binding.


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