BILLS OF EXCHANGE

DEFINITION:

It is a written instrument or document containing an unconditional order,

 Drawn by one person accepted by another (Seller draws on buyer or
purchaser who signs it and return it to seller)
 Contains a type of contract between two persons
 Directing a certain person to pay a certain sum of money.

PARTIES INVOLVED

Drawer: Maker of bill of exchange (seller)

Drawee: Accepter of Bill of Exchange (Purchaser)
Payee: who receives the payment

NOTE:
1. If seller retains the Bill of Exchange and does not pass it to the third party in
that
case, he is the drawer as well as payee.
2. If the drawer passes the bill to the third party in that case third party is the
payee
means receiver of the payment

MATURITY OF BILL

It means due date for payment.

It is the date on which payment is to be made by the buyer
Grace period: 3 days given as per law (Negotiable Instrument Act 1881).

Calculation: Expiry date of period +grace period (3days)

For Eg:
1. A bill drawn and accepted on 5th March is payable after 30days.

Sol:
Expiry date : 05/03 to 31/03 = 26days + 4days (4/4) = 30days(4 April)
Grace period: 03 days (7April )
Maturity of bill is due on 7April

Eg:2:
A bill drawn and accepted on 5th March is payable after 1 month.

Sol:
One month does not mean 28/29/30/31 days
One month means jump for full month i.e. 5/3-------5/4
Plus 3days grace i.e. 8 April is the maturity date of bill

Eg:3:
A bill drawn and accepted on 5th March is payable after 3 months 20 days.

Sol:
05/3---------05/6
Plus 20 days i.e. 25/6
Plus 3days grace i.e. 28/6 is the maturity date of bill

POINTS TO REMEMBER

1. Assets i.e. from which we receive the payment – Debit balance

Liability i.e. where payment is to be given – Credit balance

Increase in asset Debit. Decrease in asset Credit

Increase in liability credit. Decrease in liability Debit.

2. Noting charges: It is the fee paid to notary public for noting and protesting
(complaining) the Bill of Exchange of its dishonour.

 When a BOE is dishonoured, in order to prove the fact, the drawer (or
holder) may get the BOE noted and protested through a public official
known as “Notary Public”
 Noting is the recording of the fact of dishonour by a Notary public which
becomes an evidence (proof) of dishonour. The noting is done by
recording the fact of dishonour, the date of dishonour and the reason of
dishonour, if any.
 Such noting is done within a reasonable time after dishonour.
 For doing all this, the notary public charges his fees which is called
Noting Charges.
 The amount of noting charges is recovered from the party responsible for
dishonour, generally the debtor
 Protest is the formal certificate given by the Notary Public.

3. Bills Receivable and Bills Payable are not different documents. The same
bill is Receivable for the drawer and payable for the drawee