Types of Negotiable Instruments

Cheques

Cheques are a note containing the amount one person pays to another. It includes the bearer's name and the
account number where the funds will be taken. Additionally, it consists of the person who is paying. Even if
the cheque is unclaimed, no other person can use it to commit fraud. In essence, cheques are the most secure
method for making payments or moving money from one person to another.

Deducting the funds from one account and reimbursing the same to the other is more time-consuming.
However, many people are still thinking of issuing cheques for security reasons. Companies and individuals
use various cheques, such as traveller's cheques, cashier's cheques, certified cheques, personal cheques, etc.

Traveller's Cheques

A different, less popular type of negotiable instrument is the traveller's cheque. They require two signatures
to be valid, and the document's signer is the person paying at the date of issue. 

An additional signature is necessary when it is time to issue the payment. The documents are useful in
foreign countries where banks issue them in prepaid funds. Traveller's cheques are getting scarcer, and
many foreign retailers don't accept them. 

Bills of Exchange 

In transactions involving both services and goods, they are legally binding documents. These bills direct one
person to pay a certain amount to another person. The person who pays the bill accepts the exchange bill, an
official contract for payment. If issued through a bank, the bill of exchange is typically referred to as a draft
from a bank. If an individual or business issues the bill, we call it a trade draft.

Money Order

Money orders provide a speedy and reliable payment option, and they are issued by a financial institution or
any other organisation. You can purchase an order for money in cash and determine its value before sending
it to the recipient. 

The cash exchange takes place in the end. The primary distinction between money orders and cheques is
that money orders typically limit the amount of money issued. They also have smaller personal details than
a check because no personal information about your bank account is mandatory.

Promissory Notes

If a promissory note is issued, it reveals the amount due and the interest rate and the payment due date. Like
other negotiable instruments, they are written documents that show a promise to pay made between a payer
and the recipient. 

The document is filled with all relevant details, such as the interest rate, the date of issue, the principal
amount and the payee's signature. The advantage of promissory notes is that it permits companies to access
funding outside official financial institutions.
Roles of Negotiable Instruments

Negotiable instruments have paramount importance in the business world. The roles have always increased
as a result of the development of international trade. Their major roles in the modern business enterprise
include:

1. Negotiable instruments are instruments of credit: To carry out a commercial transaction, the
customer does not need cash immediately. He buys on credit and pays only in the future, at the
maturity of the instruments. On the supplier side, cash will be available only later, but there is a
possibility to get cash ealier

2. Negotiable instruments can be discounted: The payees do not have to wait for the due date to get
the money. If they are in need of money, they can convert the negotiable instruments into cash, by
discounting them with a bank. So the money does not get locked in. However, the payee does not
receive the money in full since the bank takes fees.

3. Negotiable instruments are valid evidence of debt: They are full proof of indebtedness since they
are unconditional promises to pay.  No need for the payee to prove that the debt exists. If the
instrument is valid, a court will assume that the purchaser is in debt of the seller. The maker of a note
or the acceptor of a bill must be careful when signing it. The holder may cash it even if there is no
underlying debt since he does not have to prove it.

4. Negotiable instruments can be easily transferred: The bearer of a negotiable instrument can
easily transfer it to another party for settlement of debts. He just needs to endorse it and deliver it to
the other party.  Blank endorsement must used with extreme care since the instrument can be cashed
by any bearer.