NEGOTIABLE INSTRUMENTS – Bill of exchange

Question

Briefly explain three uses of a bill of exchange

Answer

Uses of bill of exchange

• A bill of exchange provides a creditor with a better remedy, because, once it has been issued (or accepted where applicable) it settles the amount of the debt owing and makes a legal remedy easier to obtain than would have been the case under an ordinary contract. For example, there is no need to explain the terms of the contract which creates the debt.
• A bill of exchange may be discounted. Thus anybody who holds the instrument, and is entitled to claim the money on due date; can discount it by taking it to a bank or discounting house. The bank will in many cases, be willing to take the instrument off the holder’s hands, pay him the agreed value and collect the money when due.
• A bill of exchange can be negotiated. Anyone who holds a negotiable instrument, such as a bill of exchange, can transfer it to a creditor in payment and the payee could, if he chose, use it in this manner to settle his debt with another party.