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.
- 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.