Original Source Ashley, A. (2005), Oxford Handbook of Commercial Correspondence: New Edition, O.U.P.

Document A: Bills of Exchange A bill of exchange (B/E) is an order sent by the drawer (the person asking for the money/exporter) to the drawee (the person paying/importer) stating that the drawee will pay, on demand or at a specified time, they amount shown on the bill. If the drawee accepts the bill, they will sign their name on the face of it and date it. The bill can be paid to a bank named by the drawer, or the drawee can name a bank they want to use to clear the bill. In the latter case, the bill will be kept at the drawers bank until it is to be paid. When the bill is due, it is presented to the paying bank. Such bills are said to be domiciled with the bank holding them. It is possible to send the bill direct to the drawee, if they are well-known to the drawer. A Sight bill or Sight draft is paid on presentation. In a Documents Against Payment (D/P) transaction, the sight bill is presented to the importer with the shipping documents, and the importer pays immediately, i.e. on presentation or at sight. A bill paid Days After Sight (D/S) can be paid on or within the number of days specified on the bill. For example, 30 days after sight (or 30 D/S) means that the bill can be paid thirty days after it has been presented. A bill which is paid after a period of time is called a usance. In a Documents Against Acceptance (D/A) transaction, the bank will ask the drawee to accept the bill before handing over the shipping documents. In the UK, bills of exchange drawn or payable in another country are known as Foreign Bills, and those used within the country in which they are drawn up as Inland Bills. A Clean Bill is one that is not accompanied by shipping documents. The advantage to the exporter of payment by bill is that the draft can be Discounted i.e. sold to a bank at a percentage less than its value, the percentage being decided by the current market rates of discounting. So even if the bill is marked 90 days after sight, the exporter can get their money immediately by selling it to the bank. The bank, however, will only discount a bill if the buyer has a good reputation. The advantage for the importer is that they are given credit, provided the bill is not a sight draft. Bills can be negotiable if they are Endorsed (signed on the back) by the drawer. For instance, they could be endorsed as payment to a debtor, and in so doing, the bill would be made payable to its new owner. Bills of exchange can be endorsed specifically to a named party. A Dishonoured bill is one that is not paid on the due date. In this case the exporter will Protest the bill, i.e. they will go to a lawyer, who will, after a warning, take legal action to recover the debt.

There is also a Cash Against Documents transaction (CAD), where the documents are handed over to the importer when cash has been paid. In these transactions, of course, there is no bill of exchange and the importer is not given credit.

After you have filled in all the gaps correctly, please answer the following questions:

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

What does a drawee do if they accept the bill of exchange? What is a domiciled bill? What happens in a D/P transaction? What does 30 D/S mean? What is a bill called when it is paid after a period of time? What happens in a D/A transaction? What is a Clean Bill? What is the benefit to an exporter with payment by bill? Explain What does it mean if the bill is negotiable? What is a dishonoured bill? What is CAD?