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
Types of Bill of Exchange
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
Bills of Exchange: The Basics
The following are the basic components of a Bill of Exchange:
A written Bill of Exchange is required.
The vendor who creates the Bill is known as the "Drawer," and the individual on whom the Bill is drawn is known as the "Drawee.
A Bill of Exchange must carry a specific amount and must only be in terms of money, not commodities or services.
The payment order should be unconditional.
A Bill of Exchange's Dishonour
Dishonour of a Bill of Exchange occurs when the acceptor of a Bill of Exchange fails to pay the Bill on the due date of maturity or refuses to pay. A payee may obtain a certificate from a Notary Officer appointed by the government for this purpose as proof of Bill Dishonour. In this case, the notary charges a fee known as "Noting Charges."
Parties to a Bill of Exchange
Drawer- A debtor or borrower is referred to as a drawer. The individual who promises to pay a debt to someone else.
Drawee- Is a creditor or a lender. The individual whose name is on the Bill.
Payee- The individual to whom money is to be paid or the person who is to be paid.