A bill of exchange is a type of security that represents legally binding obligation. A bill of exchange is considered an indisputable and unconditional trade document; it can be of two types simple and transferable. A promissory note is an obligation of a creditor to pay a specified amount of money to another person. A bill of exchange is a document containing an order to make a payment to another person who must execute the acceptor.
A bill of exchange must be drawn up in a strictly established form in compliance with the law, it can be used in trade settlements, including international ones. The lender issuing the bill of exchange is called the drawee, the borrower who will pay the bill is called the drawee, and the recipient of the amount marked in the bill is the remitter. Moreover, the drawer himself may also be a remitter. A bill of exchange was created primarily to facilitate trade transactions. For example, a bill of exchange could be used to pay the buyer to the seller, and payment would be made by either a bank or a third party.
A bill of exchange must display the following entries:
- The word “Bill of exchange” must be written in the text of the document and in the language in which the document is written.
- A simple offer to pay a certain amount of money.
- Payment term.
- Name of payer.
- Indication of the institution where the payment is to be made.
- The data of the person on whose order the payment should be made.
- Place and date of drawing up the bill.
- Personal signature of the drawer.
In the event that the document does not contain at least one of the above items, the bill can be considered invalid. At the same time, there are a number of deviations from the norm.
- If the bill of exchange does not indicate the exact date of payment, then it is paid upon presentation.
- If the exact place of payment is not indicated in the bill, then it will be the payer's address.
- If the place of compilation of the bill of exchange is not indicated in the bill, then this will be the address of the drawer.
- If there are third party signatures on the bill that cannot be borne by the bill, then the signatures will be considered invalid.
A bill of exchange is presented to the payer in order to obtain his consent to pay the bill.
The main function of a bill of exchange is to certify bill rights, it is often ranked as a security, since it is a bill of exchange that is a legal fact that underlies the creation of certain property rights. Turning to the law, it becomes clear that a transferable interest bill should contain an unconditional offer to pay the required amount. Most often, bills of exchange are used to issue debts under credit agreements.
Today, promissory notes are more relevant in Russia than transferable bills. The reasons for the unpopularity of transfer payments in the Russian Federation are:
- Promissory notes, unlike transferable bills, are exempt from tax on securities.
- Bills of exchange are much more difficult to issue.
- Additional difficulties with bills of exchange are created by the acceptance procedure.
- Low level of legal literacy of the population.
Despite the above disadvantages, the use of bills of exchange has an undeniable advantage over ordinary bills. For example, they can be used in legal transactions with a letter of credit form of settlement, when the transaction partners do not know each other well. In the preparation of a bill of exchange can participate from two to four persons. A special feature of a bill of exchange is the fact that it can transfer from owner to owner, but only the last of them should become a real present.