Consulting And Compliance
DGFT Guru > Blog > Business > What is Bill of Exchange in Export
Posted in:
No Comments
Master export finance, explore the significance of Bill of Exchange in cross-border trade and navigate your transactions like an expert. A guide for better understanding.

What is Bill of Exchange in Export

In the dynamic landscape of international commerce, where goods traverse borders and markets, financial elements play a significant role in ensuring smooth and secure transactions. One such element, the Bill of Exchange, acts as a key element in facilitating trade agreements. 

Today, let’s embark on a journey to unravel all the complexities of the Bill of Exchange, understanding its meaning, importance, parties involved, types, and functions, and even going through a practical example.

Meaning of Bill of Exchange

Simply put, a Bill of Exchange in export is a written order, like a formal IOU that is issued by an exporter to an importer. This bill directs the latter to pay a certain amount within a particular time frame. Thus, this legal document holds a prominent place in international trade, ensuring a structured and transparent payment process. 

The Bill of Exchange puts forth a formalised framework for financial transactions along with establishing clearly laid terms that govern the payment.

Importance of Bill of Exchange

Wondering about the significance of this bill? Well, now you will know.

So, the Bill of Exchange holds importance in the export-import market because of its potential to mitigate risks for exporters and lay out a well-defined framework for payment. In the complex world of cross-border transactions, where parties may not have direct physical contact, this bill acts as a tangible commitment from the importer to honour their financial obligations. This commitment fosters trust between trading partners, reducing uncertainties and promoting smoother transactions.

Information on a Bill of Exchange

A Bill of Exchange can be perceived as a comprehensive document that contains crucial information to ensure a transparent and efficient financial transaction. Among the key details included in the document are:

  • Names of the parties involved (drawer, drawee, and payee)
  • Specific amount to be paid
  • Currency of payment,
  • Terms of payment
  • Date and place of issuance 

All these details act as a blueprint, leaving little room for ambiguity or misunderstandings.

Parties Issuing Bill of Exchange

The entity responsible for creating and issuing the Bill of Exchange is known as the drawer. Typically, the exporter takes on this role, leveraging the Bill of Exchange as a financial instrument to initiate and formalise the payment process. The exporter, acting as the drawer, exercises control over the terms and conditions stipulated in the document.

Parties to a Bill of Exchange

A Bill of Exchange in export involves three primary parties, each with different roles in the transaction:


The exporter issues the Bill of Exchange, initiating the payment process.


The importer is obligated to make the specified payment as outlined in the Bill of Exchange.


The entity to whom the payment is directed is often the exporter or a designated third party. The payee is the ultimate beneficiary of the payment.

Types of Bill of Exchange

The flexibility of the Bill of Exchange is reflected in its various types, each catering to different needs and scenarios in international trade. Two common types are:

Sight Bill

In this case, payment is immediate upon presentation of the Bill of Exchange. This type ensures swift and direct settlement.

Usance Bill

Unlike the Sight Bill, a Usance Bill includes a specified credit term. Importers are granted a predetermined period, such as 30, 60, or 90 days, to make the payment after acknowledging the receipt of goods.

Functions of Bill of Exchange in Export

The Bill of Exchange serves multiple purposes, making it a versatile and indispensable instrument in international trade. Some of its key functions include:

Payment Assurance

The Bill of Exchange in export acts as a written commitment, providing assurance to the exporter that the importer will make the specified payment within the agreed-upon timeframe.

Financing Tool

Beyond its role in facilitating payments, the Bill of Exchange can be leveraged as a financing tool. Exporters can use the document to secure financing from banks or financial institutions, using the anticipated payment as collateral.

Risk Mitigation

In the complex landscape of international trade, uncertainties and risks abound. The Bill of Exchange serves as a risk mitigation tool by establishing clear terms and conditions for payment, reducing the likelihood of non-payment or delayed payment.

Working of Bill of Exchange

Understanding the workings of a Bill of Exchange involves a series of steps, from its creation to the eventual completion of the financial transaction. Let’s break down the process:

Creation of the Bill

The exporter (drawer) creates the Bill of Exchange, outlining the specific terms, including the amount to be paid, the currency, the credit period (if applicable), and other relevant details.

Shipment and Presentation

Alongside the shipment of goods, the exporter presents the Bill of Exchange to the importer (drawee). This presentation emphasises the importance of acknowledging the receipt of goods and committing to the payment terms outlined in the document.

Acceptance by the Importer

The importer reviews the Bill of Exchange in export, and formally accepts the terms by signing the document. This acceptance signifies the importer’s commitment to making the specified payment within the agreed-upon timeframe.

Usance Period Commences

In the case of a Usance Bill, the specified credit period begins from the date the importer accepts the Bill of Exchange. During this period, the importer can make necessary financial arrangements to fulfil their payment obligation.

Payment Upon Maturity

As the credit period elapses, the importer honours the Bill of Exchange by making the payment to the exporter or the specified payee. This step completes the financial transaction, and the exporter receives the funds.

Closure of Transaction

With the payment received, the exporter concludes the export transaction successfully. The Bill of Exchange has fulfilled its purpose by providing a structured and reliable mechanism for payment.

Example of Bill of Exchange

Let’s go through an example to get a more clear understanding of how the Bill of Exchange functions. Say for instance, in a transaction between GreenTech Solutions and EcoElectronics Ltd., EcoElectronics draws a Bill of Exchange for $1,200,000, designating themselves as the payee. GreenTech Solutions accepts the terms, committing to payment within 90 days. 

As the usance period elapses, EcoElectronics presents the Bill, and GreenTech Solutions fulfils the obligation, transferring $1,200,000. The Bill of Exchange processes a seamless financial transaction, showcasing its crucial role in facilitating trust and structured payments in international trade.

Advantages of Bill of Exchange

Now that we know the basics of the Bill of Exchange and how it functions, let us go through the benefits you will gain by using this bill in your cross-border trade.

Risk Mitigation

The Bill of Exchange provides a structured mechanism that minimises the risk of non-payment or delayed payment, offering assurance to exporters.

Financing Opportunities

Exporters can leverage Bills of Exchange to secure financing from banks, as the document serves as tangible proof of an impending payment.

Transparent Payment Terms

The Bill of Exchange establishes clear and transparent payment terms, reducing uncertainties and fostering trust between trading partners.

Difference Between Bill of Exchange and Promissory Note

While both the Bill of Exchange and Promissory Note are financial instruments, they serve distinct purposes and involve different dynamics. Let’s have a look at them.

Bill of Exchange

Involves three parties (drawer, drawee, and payee) and is primarily used in trade transactions. It serves as a directive for the drawee to make a payment to the payee.

Promissory Note

Involves two parties (maker and payee) and is commonly used for loans or debt arrangements. The maker of the note promises to pay a specified amount to the payee.


In conclusion, the Bill of Exchange in export emerges as a key element of international trade, offering a structured framework for financial transactions. As exporters and importers navigate the complexities of cross-border commerce, a well-understood Bill of Exchange serves as a beacon, fostering trust and efficiency in the international arena of trade. 

Its multifaceted functions, from risk mitigation to financing opportunities, underscore its significance in facilitating transparent and secure trade agreements. In a world where precision and reliability are paramount, the Bill of Exchange stands as a testament to the evolving dynamics of international commerce.

To extract maximum benefits and smoothly go through cross-border trade, it is a good idea to collaborate with professional DGFT consultants. They will make your journey more cherishable and lead you towards tremendous success.

Leave a Reply