A bill of exchange is a legally binding financial instrument widely used in international trade to facilitate secure payments between buyers and sellers.
In this arrangement, the drawer (typically the exporter) issues the bill. It instructs the drawee (usually the importer or their bank) to pay a fixed sum of money to a designated payee at a specified future date.
This document serves as a formal order of payment, playing a crucial role in trade finance. It helps exporters secure payment terms and provides importers with a structured payment schedule.
- Involves three parties: the drawer (issuer), drawee (payer), and payee (recipient of the payment).
- Specifies a payment amount and due date, often used to settle international trade contracts.
- Functions as a credit instrument, giving buyers time to pay while assuring sellers of future payment.
- Can be negotiable, meaning it can be transferred or sold to a third party, such as a bank.
