Bill of Exchange

Maturity, Discounting, Due Date and Endorsement of Bills

In the business world, bills of exchange are an important tool to facilitate transactions and deals. It is hence important to learn about them and their terms. Let us learn about Maturity, Discounting, Due Date and Endorsement of Bills.

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Bill of Exchange

Transactions are the cornerstone of the business. They occur on a daily basis in every business. As business is based upon transactions, they are either done in cash or credit. A cash transaction is an upfront and immediate. Whereas, credit transaction is done in the future.

To support the assurance of payment in the future, the seller urges the buyer to sign an agreement known as Bill of Exchange. It is a legal writing written by one side (maker or drawer) ordering the other side (payer or drawee) to pay a certain amount within or on the decided date.

As per the Negotiable Instruments Act 1881, a bill of exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of a certain person or to the bearer of the instrument. Further are the characteristics of the bill of exchange;

  • A bill of exchange is in writing.
  • It is an order to make payment.
  • The order to make payment is unconditional.
  • The maker of the bill of exchange must sign it.
  • The payment to be made must be certain.
  • The date on which payment is made must also be certain.
  • The bill of exchange must be payable to a certain person.
  • The amount mentioned in the bill of exchange is payable either on demand or on the expiry of a fixed period of time.
  • It must be stamped as per the requirement of law.

A bill of exchange is issued by the lender (creditor) upon his debtor (indebted person). It needs to be acknowledged by the drawee (debtor) or somebody on his behalf. It is only a draft until its acceptance is confirmed.

Maturity, Discounting, Due Date and Endorsement of Bills

Maturity of Bill and Due Date

Here we will learn about the maturity of the bill of exchange. In the commercial world maturity means ‘date when payment is due’. The date that comes after adding the 3 days of grace to the due date of the bill is known as ‘date of maturity’.   To understand the maturity of bill better, first, you need to under the concept of a due date.

  • Due date – It is a date on which the payment is expected/due.
  • Bill at Sight – Due date is the date on which a bill is presented for the payment.
  • Bill after Sight –Here, the due date is the date of acceptance plus terms of the bill. For example, if the bill is drawn on 1st March and it is accepted on 5th March. In that case, if the maturity of the bill is 1 month after sight. Then the due date would be 5th March + 1 month = 5th April.
  • Bill after Date – Here, the due date is the date of drawing plus the terms of the bill. For example, if the bill is drawn on 1st January and its maturity is 30 days after date then its due date would be 1st January + 30 days = 31st January.
  • Days of Grace – Drawee is given three extra days following the due date of the bill for making payment. These 3 days are known as ‘Days of Grace’. It is a custom to add the days of grace. For example, if the bill is drawn on 1st January and its maturity is 1 month then the due date would be 1st January + 1 month + 3 days = 4th February.

Discounting of Bill

On the off chance that the holder of the bill needs money, then he can go to the bank for encashment of the bill before the due date. The bank will give money to the holder of the bill after cutting some interest. That interest deducted is called discounting.

Endorsement of Bill

Endorsement of the bill implies the procedure by which the maker or holder of bill transfers the title of the bill in assistance of his/her creditors. The individual transferring the title is called “Endorser” and the individual to whom the bill is exchanged called “Endorsee”. An endorsement is done by signing at the back of the bill.

Solved Question for You

Question. State 3 essential features of the bill of exchange

Answer: Three essential features are as follows

  • The maker of the bill of exchange must sign it
  • The payment to be made must be certain
  • The date on which payment is made must also be certain.
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