A bill of exchange is a financial instrument used in international trade to arrange payment between an exporter and importer. It is an unconditional order signed by the exporter (drawer) directing the importer (drawee) to pay a specified sum of money to the exporter (payee) on a set future date. The exporter sends the bill of exchange and documents related to the shipment to their bank for collection from the importer. The bank then delivers the documents to the importer upon acceptance or payment of the bill.

1. Financial Documents
 Bill of Exchange
 A bill of exchange is popularly known as bill.
 Under section 5 of the Indian Negotiable Instruments Act, bill of exchange
means “ 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 order of a certain person, or to the bearer of the instrument.”
 Bill of exchange is an instrument or draft used for the payment in
international/export business.
 The person to whom the bill of exchange is addressed is to pay either on
demand or at a fixed or a determinable future.

2.  Payment through a bill of exchange is a common method of payment in international
trade.
 An exporter draws a bill on an importer calling upon him to pay a specified sum of
money on an appointed date. The bill will be sent to the importer who will sign it by
giving his consent. A banker of the importer may also accept the bill on behalf of his
client.
Bill of
Exchange
An instrument or draft
used for the payment in
international/export
business
An unconditional order,
signed by the maker,
directing a certain
person to pay a certain
sum of money

3. There are three parties to the bill of
exchange
1. The drawer (exporter):
 The person who executes the bill and the payment is due to him
2. The drawee (importer):
 The person on whom the bill is drawn and is expected to make the payment as
per the terms of the document
3. The payee (exporter or his bank):
 The party which receives the payment of the bill.

5.  The exporter will sent the bill of exchange to the bank along with the
documents attached, with the instructions to send them abroad for
collection.
 The banker is instructed to deliver the documents to the importer against
acceptance or payment of bill.
 In case the documents are to be released against the acceptance of the
bill, bill is called documents against acceptance bill.
 But where the documents are to be released only against payment, it is
called documents against payment bill.
 If no documents of title to the goods are enclosed to the bill, it is called a
clean bill.