WHAT DO YOU FEEL

WHEN YOU HAVE A

FINANCIAL OBLIGATION
TO SOMEONE?
WHAT DO YOU USUALLY SAY
TO THE CREDITOR AS AN
ASSURANCE THAT YOU WILL
PAY THE OBLIGATION?
• Also termed as drafts.
• Lombardian Jews
• From an ordinary letter of credit written by a
merchant.
• Serve to evidence the promise of an importer
that he will discharge his financial obligations in
accordance with the terms agreed upon.
• Payable at a later or future date.
“an order drawn by one party who
is the drawer directing a second
party, who is the drawee, to pay a
third party who is the payee, a
specified sum of money at a certain
determinable date”
Company ABC purchases auto parts from Car
Supply XYZ for $25,000. Car Supply XYZ draws
a bill of exchange, becoming the drawer and
payee in this case, for $25,000 payable in 90
days. Car Supply XYZ becomes the drawee and
accepts the bill of exchange and the goods are
shipped. In 90 days, Car Supply XYZ will present
the bill of exchange to Company ABC for
payment. The bill of exchange was an
acknowledgment created by Car Supply XYZ,
which was also the creditor in this case, to show
the indebtedness of Company ABC, the debtor.
The term bill of exchange inserted in the body of the
instrument and expressed in the language employed in
drawing up the instrument.
An unconditional order to pay a determinate sum of
money.
The name of the person who is to pay (drawee)
A statement of the time of payment
A statement of the place where payment is to be made.
A statement of the date and of the place where the bill
is issued.
The signature of the person who issues the bill (drawer)
The fundamental distinction between a bill of
exchange and a promissory note is that the first is
an order or command, not because it is payable
to order but because by its terms it orders or
commands the drawee to pay money to a payee
or bearer while the second is a promise to pay
the creditor.

(Handbook on Negotiable Instruments, p.62).

 Bills of Exchange

TENOR DOCUMENTARY
ATTACHMENTS
NO. OF DAYS
CURRENCY COVERED

SIGHT or CLEAN
DEMAND DRAFTS DRAFTS

TIME DOCUMENTARY
DRAFTS
Sight or Demand Drafts
• Immediately payable upon presentation of draft.
• The basic intent in the use of sight draft is to relieve the exporter
a credit risk arising from an account receivable.

Time
• Calls for payment within a certain specified period of time,
called maturity date.
• Ranges from 60 to 120 days with an average of 90 days or 3
months.
• Arises a trade acceptance draft – when the importer writes the
word “Accepted” across the face of the draft and signs his name
with the date underneath.
• Gives not much credit protection to the exporters.
•Exporters may decide to bill
their customers in terms of their
currencies of the countries to
which the goods are destined
Short Bills
• Time drafts which are drawn covering a
period shorter than 30 days.

Long Bills
• Time drafts which are drawn covering a
period longer than 30 days.
Clean Drafts
• Commonly used by the exporter to collect an amount due from the
importer for a shipment of merchandise and is not accompanied by the
presentation of shipping documents.

Documentary Drafts
• Draft is not honored for payment unless the stipulated conditions are
complied with.
• Can either be a D/P draft ( documents against payments) or a D/A
draft (documents against acceptance).

D/P – not to release shipping documents to the importer (drawee) until the
amount of the draft is paid.

D/A - authority is given to the bank to release the documents when the
drawee accepts the draft.
• To effect international settlements and as means
of avoiding the shipments of large quantities of
gold.

• Serve to evidence the promise of an importer

that he will discharge his financial obligations in
accordance with the terms agreed upon.

• To minimize the credit risk of the exporter from

the importer.