Bill of Exchange

According to Negotiable Instruments Act, 1881, a bill of exchange is defined as 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.

Advantages of Bills of Exchange

1. Fixation of terms and conditions: The payee knows when he will get the cash so likewise payer is
completely mindful of the date by which he needs to pay the said sum.
This is on the grounds that the terms and states of the connections among payer and payee, for
example, sum required to be paid, date of installment, interest to be paid, and so forth are fixed
already.

2. Proof: An obligation gets secure and its recuperation turns out to be simple when the lawful
forces hinder in the middle. One of the fortes of Bills of Exchange is that is legitimate indisputable
proof of the obligation taken by another gathering.
Accordingly, if the payee won't pay the sum, the law will meddle and take further significant
activities against the indebted person.

3. Easy Transferability: Bill of exchange can be used for settling the debt of the creditors. Mere
delivery and endorsement of the bill give a valid title to the endorsee.

4. Wider Acceptance: In case of foreign bill, wider acceptance is given to the parties through which
payments can be received and made easily.

5. Mutual Accommodation: Sometimes, bills can be issued for mutually accommodating the parties
so that financial help can be given to each other.

Disadvantages of Bills of Exchange

1. The bills of exchange are for short term service, which is not a good option for banking services.

2. If bills of exchange are not accepted then it is an additional burden on the person who was drawn.

3. The discount allowed is also like an additional cost.

4. One of the greatest disadvantages of the bill of exchange in international trade is that, in the bill
of exchange only one Bank is involved which does not provide the level of security/trust/guarantee
that is required in the international trade in regards to money.

5. Can be used only for inland dealings.