A Bill of Exchange is something that reduces our credit risk, Let’s understand this concept better with the help of an example; Omkar being the seller sold goods worth Rs 10,000 to Ishaan being the buyer on credit. In the given case, Omkar has sold goods to Ishaan believing that on some future date he will make payment. Now, we can analyze that Omkar is a little skeptical regarding the certainty of receipt and time of such payment. In order to set an exact date of payment and to make his transaction legally valid, Omkar will draw a document in writing. Such a document is called Bills of Exchange. The Parties of a Bill of Exchange are discussed below
Parties to Bill of Exchange
Drawer: The person who makes and signs the Bill of Exchange is known as Drawer. He/ She is the seller of the goods.
Drawee: The Person who accepts the Bill of Exchange is known as Drawee. He/ She is the buyer of the goods.
Payee: Payee is the person whose name is mentioned in the Bill of Exchange, to whom the payment is to be made. A payee can be either Drawer or some other person.
As per the Negotiable Instrument Act, 1881, “ A Bill 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, a certain person or to the bearer of the instrument.”
For Example, Arjun sold goods to Sahil worth Rs 10,000 on July 18, 2013. On the same day, Arjun drew a bill of Rs 10,000 on Sahil for 90 days which is duly accepted on the same date.
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