Bill of exchange

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Bills of exchange are widely used to finance trade and, when discounted with a financial institution, to obtain credit.

The formal legal definition of a bill of exchange is as follows:

An unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a certain sum in money to order or to bearer.

Expressing this in less formal language, it is a written order from one party (the drawer) to another (the drawee) to pay a specified sum on demand or on a specified date to the drawer or to a third party specified by the drawer.

See also