Bill of Exchange
A Bill of Exchange is a written, signed order by which one party (the drawer, usually the seller) instructs another (the drawee, usually the buyer or their bank) to pay a fixed sum to a named payee on demand (a sight draft) or at a set future date (a term/usance draft). It is a negotiable instrument long used to finance and settle international trade.
In documentary trade, a bill of exchange is often presented together with shipping documents under a letter of credit or documentary collection: the buyer either pays it (documents against payment) or accepts it, promising to pay at maturity (documents against acceptance), in exchange for the documents needed to collect the goods. A term bill effectively grants the buyer credit while giving the seller a legally enforceable, potentially discountable claim to payment.
The bill of exchange is centuries-old trade plumbing that still moves money across borders — it turns "you'll pay me later" into a signed, enforceable, tradeable claim. Understanding sight versus term drafts, and documents-against-payment versus acceptance, is central to how exporters get paid and buyers get credit in international trade.
What is the difference between a sight and a term bill of exchange?
A sight draft is payable on presentation; a term (usance) draft is payable at a fixed future date, effectively granting the buyer credit.
How is a bill of exchange used with shipping documents?
Under documentary collections the buyer pays or accepts the bill to receive the documents needed to collect the goods (D/P or D/A).