Bill of Exchange:

For a prolonged time, cancelling the old bill and drawing up a fresh bill is called the Renewal of Bill. Drawee is requested to pay interest for the extended duration, which can be charged in cash or added to the sum of the new bill.

Bill of exchange implies a bill drawn up by a person directing another person to pay another person the amount of money mentioned. For instance, X orders Y to pay 50,000 for 90 days after the date, and Y accepts this order by signing his name, then it will be an exchange bill.

Characteristics of Bill of Exchange:

  • A bill of exchange in writing is necessary to have in a bill.

  • To make a payment, it must include a confirmation order and not just the request

  • No condition should be present in the order

  • The sum of the exchange bill should be definite,

  • Date set for the amount to be paid

  • Both the drawee and the drawer must sign the bill,

  • The sum displayed on the bill should be charged on demand or at the end of a set period.

  • The sum shall be payable to the beneficiary of the bill, to a person, or against a definite order.

Types of Bill of Exchange:

  • Documentary Bill- 

The bill of exchange is hereby accompanied by the related documentation confirming the validity of the sale or transaction between the seller and the buyer.

  • Demand Bill- 

When it is submitted, this bill is payable. The bill does not have a set payment date, but once presented, the bill needs to be cleared.

  • Usage Bill- 

It is a time-bound bill that indicates that within the specified period and time, the payment has to be made.

  • Inland Bill- 

Only in one nation and not in any other foreign country is an Inland Bill payable. This bill is the reverse of a foreign bill.

  • Clean Bill- 

There is no evidence of a text in this bill, so the interest is relatively higher than the other bills.

  • International Bill- 

A foreign bill is known as a foreign bill that can be charged outside India. An export bill and an import bill are two examples of a foreign bill.

  • Accommodation Bill- 

A bill is regarded as an accommodation bill that is supported, drawn, approved without any condition.

  • Trade Bill- 

This form of the bill is only directly linked to trade.

  • Supply Payment- The bill that is withheld from the government department by the supplier or contractor is known as the supply bill.

Renewal of Bill of Exchange:

The extension of the bill of exchange is an act of revocation of the old bill before its maturity for an extended period in return for a new bill, including interest. At the request of the drawee, it is done by the drawer. The drawee may often not be able to pay the balance of the bill on the due date. He will ask the drawer to cancel the old bill and for an extended period to draw up a fresh bill. In some cases, the acceptor of the bill will find it difficult to repay the balance of the bill on the due date. 

Therefore, in such a case, the acceptor may order the holder of the bill to replace the old one with a new one, which would then allow the acceptor of the bill to repay with some time extension. If such a proposal is agreed by the holder of the bill, the old bill is cancelled and the new bill is drawn, which is then authorized by the drawee. This process of cancellation of the old bill and its replacement with the new bill is also called the renewal of the exchange bill.

Learning Objective of Renewal of Bill of Exchange:

If the original bill is cancelled and a fresh bill is drawn on the acceptor side, one should make journal entries in the drawer and acceptor books; so that it becomes easy for future redressal of payments. If the receiver of a bill finds himself unable to pay the bill on the due date, he will ask the drawer of the bill to cancel the original bill before it is due and draw on it a new bill for an extended period. This is called renewing a bill of exchange. The acceptor has to pay interest for the extension of time. Therefore, the current bill not only contains the cost of the original bill, but also interest, etc.

Advantages of Renewal of Bill of Exchange:

  • It is legal proof of debt.

  • It is a simple form of debt transfer.

  • On the bill itself, a lender will sue.

  • It is a negotiable instrument and can without difficulty be exchanged for settlement of one's debt.

  • It can be discounted before the due date.

  • A debtor enjoys the advantage of a full loan term.

  • This is a convenient way to send money from one location to another.

FAQs (Frequently Asked Questions)

1. What is the due Date in Bill of Exchange and how is it Calculated?

Ans: Due date in the Bill of Exchange is defined as the date on which the payment is due/expected. 

Bill at Sight -

The due date is the date from which the invoice is delivered as a bill. 

Bill after Sight - 

Here, the due date is the approval date plus the bill's words. 

The Due Date can be Calculated as:

In the case of bills payable after a certain period of time, the legal due date shall be determined from the date on which the bill is approved.

Example: On August 7, 2018, a bill dated August 1, 2018, payable 3 months after view is approved. November 7, 2018, is three months after the acceptance date.

2. What is the Maturity Date?

Ans: The maturity date refers to the period that a creditor is expected to repay the principal of a fixed-income instrument. Likewise, the maturity date refers to the due date on which a borrower must pay back the entire amount of an instalment loan.

To classify bonds into three major groups, the maturity date is used: short-term (one to three years), medium-term (10 years or more), and long-term (10 years or more) (typically 30 year Treasury bonds). As soon as the maturity date is met, interest payments charged to investors regularly stop because the loan arrangement no longer exists.