Retirement of Bills of Exchange

What Do You Mean by Bills of Exchange?

Bill of exchange is generally honoured only on the maturity date. While, in some cases, the bills can be honoured before time of its maturity. This honouring of the bill is known as the Retirement of bills of exchange. Also, a bill may be cancelled before time and a new bill can be written in its place. This action is known as Renewal of the bills of exchange. 

We will further discuss this topic of ‘Retirement of Bills of Exchange’. This concept is taken to be a priority in today’s business world. 


Retirement of Bills of Exchange

The drawee can have surplus funds hence, he may decide to pay the amount of the bill before the date of its maturity. For this he asks the drawer or the holder of the bill whether he is ready or willing to accept the payment before the due date of the bill or before its maturity. The drawer or the holder of the bill may agree to this prepayment condition. This process is called the retirement of bills of exchange.   

Also, for this purpose, to encourage the drawee to pay the bill before the maturity date, the drawer gives the drawee a discount. Thus, this discount is known as the rebate on the bills. Thus, we calculate the rebate on the bills at a certain rate of interest for the time between the date of payment and the date of its maturity.

The rebate on the bills is actually an expense of the drawer or the holder of the bill. It is an income of the drawee or the payer. 


Meaning of Bill of Exchange 

The following features of a bill of exchange will make the meaning more clear, they are as follows:

  • A bill of exchange is required to be in writing. 

  • It is an order to make the required payment. 

  • The order to make the same payment is unconditional. 

  • The maker of the bill of exchange are required to sign it 

  • The payment should be of a definite amount. 

  • The date on which payment is to be made must also be definite. 

  • The bill of exchange is to be payable to a certain person. 

  • The amount which is mentioned in the bill of exchange is payable either on demand or after the expiry of a fixed period of time. 

  • The bill must be stamped as per the requirement of the law. 

Parties to a Bill of Exchange 

In a bill of exchange, there are three parties:

  • Drawer is the one who makes the bill of exchange. A seller or the creditor who should receive the money from the debtor can draw a bill of exchange upon the buyer or the debtor. The drawer then after writing the bill of exchange is required to sign it as maker of the bill of exchange. 

  • Drawee is the one on whom the bill of exchange is drawn. Drawee is the purchaser or the debtor of the goods on whom the bill of exchange is drawn

  • Payee is the person to whom the payment is contracted to be made. 

In a case, the drawer of the bill will himself be the payee if he keeps the bill with him till the date of its payment or maturity. 

FAQs (Frequently Asked Questions)

1. Who is a Drawee?

Ans. Drawee is a term which is used both in legal and banking field. Drawee is the one who has been directed by the depositor to pay a certain sum of money to the person who is presenting the check or draft. The bank who cashes the check is the drawee, the employer who wrote the check is the one named as the drawer, and the one paying is the payee.

The party on whom the bill of exchange is drawn is known as the drawee. Drawee is the person to whom the bill is addressed to and the one who is ordered to pay. He becomes an acceptor when he communicates his willingness to pay the bill. The Drawee of a Cheque in case of Bill of Exchange is generally a Banker.

2. What Do You Mean by Date of Maturity in Case of Bills of Exchange?

Ans. The term maturity is referred to the date on which the bill of exchange or the promissory note becomes due for the payment. Three days need to added which is known as days of grace, is to be added to the date on which the period of credit expires and the instrument becomes payable.

3. What is the Negotiable Instruments Act 1881?

Ans. A 'negotiable instrument' is a promissory note, bill of exchange or a cheque that is payable either to order or to the bearer. The UCC defines the negotiable instrument as an unconditioned writing which promises or orders the payment of a fixed amount of money.