Bills of Exchange Notes

Bills of Exchange are a source of finance in particular in the export trade. A Bill of Exchange is an unconditional order in writing addressed by one person to another requiring the person to whom it is addressed to pay to him as his order a specific sum of money. The commonest types of bills of exchange
used in financing are accommodation bills of exchange. For a bill to be a legal document; it must be

  • Drawn by the drawer.
  • Bear a stamp duty
  • Acceptable by the drawee
  • Mature in time.

It is used to raise finance through:

  • Discounting it.
  • Negotiating
  • Giving it out as security.

Advantages of Using a Bill as a Source of Finance

  • They are a faster means of raising finance (if drawer is credible).
  • Is highly negotiable/liquid investment
  • Does not require security
  • Does not affect the gearing level of the company
  • It is unconditional and can be invested flexibly
  • It is useful as a source of finance to finance working capital
  • It is used without diluting capital.

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