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.
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.
FAQs on Renewal of Bill
1. Briefly explain the Bill of Exchange?
A Bill of Exchange is a written instrument carrying an unconditional order, signed by the creator, commanding a specific person to pay a certain sum of money solely to, or to the order of, a specific person, or to the bearer of the instrument. On-demand or after a set amount of time, a Bill of Exchange can be rendered payment to the bearer.To be considered legitimate or applicable, a Bill of Exchange must be accepted. The creditor is the one who issues the Bill of Exchange.
2. What is the difference between a Bill of Exchange and a promissory note?
A Bill of Exchange differs from a promissory note in that it is transferable and can bind one party to pay a third party that was not involved in its formation. Banknotes are one of the most frequent types of promissory notes. A Bill of Exchange is a document issued by a creditor that instructs a debtor to pay a specific sum within a certain amount of time. The debtor, on the other side, issues the promissory note, which is a promise to pay a specific sum of money within a specified time frame.
3. What is the difference between a Bill of Exchange and a cheque?
The Most Significant Differences Between a Cheque and a Bill of Exchange
The cheque is a payment instrument that can be delivered by hand and can be used to make payments. A Bill of Exchange is an acknowledgment made by a creditor to prove the debtor's indebtedness to the creditor who accepts it for payment.
In the case of a cheque, the drawer and payee are always different. In the event of a Bill of Exchange, the drawer and payee are usually the same person.
In a cheque, a stamp is not necessary. A Bill of Exchange, on the other hand, must be stamped.
4. What Kinds of Bills of Exchange are there?
The term "bank draft" refers to a Bill of Exchange issued by a bank. Payment on the transaction is guaranteed by the issuing bank. A” trade draft” is a type of Bill of Exchange that is issued by individuals. A “sight draft'' is a Bill of Exchange that is used when cash must be paid promptly or on-demand. A sight draft in international trade lets an exporter retain title to goods until the importer accepts delivery and pays for them promptly. A “time draft”, on the other hand, is used when monies must be paid at a specific date in the future.
5. Give a detailed briefing on the tenor of the Bill of Exchange and days of grace?
The "tenor" of a Bill of Exchange is the amount of time it takes for it to mature. If a 90-day Bill is drafted and accepted, for example, the Bill will mature after 90 days. As a result, Bill's tenor is 90 days. Whereas when calculating Bill's due date, it is typical in the business sector to offer the drawee three extra days after Bill's maturity date to pay the Bill. These extra days are known as grace days.
6. What is the due date in the Bill of Exchange and how is it Calculated?
The 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 the view is approved. November 7, 2018, is three months after the acceptance date.
7. What is the Maturity Date?
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 installment 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.