It is an unconditional order drawn by a person to another with a fixed time period payable on demand or at maturity. It is helpful in trading activities. The person who buys good and not in position to pay then a bill of exchange is drawn by a seller on buyer. The buyer accepts it. The seller is known as drawer and buyer is known as acceptor.
The acceptor will pay a bill at fixed determinable time or on demand of drawer. Sometimes both drawer and payer are some but sometime payer is another person. It happens when drawer endorse a bill in favor of his creditor. Now the acceptor pays the bill to third person because he holds the bill now.
There are 3 grace days. Extra days have given to payable. Of acceptor did not pay the bill in time then we say that bill dishonor. If he pays the bill we say that bill is honor. In case if dishonor the holder of bill goes to notary public. They charge for their services for considering a case.
The bills of exchange may be inland or foreign. In land means drawer and acceptor are in same country and in foreign they both drawer and acceptor does not belong to same country. Bills can be drawn for months. If acceptor pays the bill before maturity then a rebate is given to him. Rebate is his income and expense of drawer. Sometimes accommodation bills are also drawn which benefits both the parties. They discounted the bill from bank and receive the benefit.
Bills of exchange are very helpful instruments. It helps in trading activities and reduces the risk of loss and bad debts. The bank can rediscount the bill from the state bank.