For information on the form that bills of exchange and promissory notes are required to take under BEA and otherwise, see Practice Note: Form of promissory notes and bills of exchange. Bills of exchange are negotiable instruments that represent an unconditional promise by one party to pay another party, in accordance with the terms of that instrument. They are often used in the context of trade finance where, for one reason or another, a party does not want to make immediate settlement of its account.
The BEA sets out in detail the requirements for the form of a bill of exchange and accordingly should be consulted prior to any detailed consideration of a bill of exchange.
BEA , s 3 1 provides that a bill of exchange is:. However, if interest must be paid in addition to the principal amount, that can still be a 'sum certain' provided that the interest rate is fixed in the instrument and is not floating. For more information, see Practice Note: Bills of exchange—structure and parties. A promissory note is a type of bill of exchange and accordingly governed by detailed provisions of BEA BEA , s 3 1 provides that a promissory note is:.
A bill of exchange is a unique instrument used for non-cash transactions. The following characteristics differentiate it from other negotiable instruments:. Though a bill of exchange majorly involves only three parties, there are various others whose role is equally important.
These parties are classified as follows:. A promissory note is a debt negotiable instrument written by a borrower drawer who promises to pay the lender payee , a specific sum on-demand or on a particular future date which is predefined. What is a promissory note? How is it different from other negotiable instruments? To get the answers, let us go through the following features of a promissory note:. But there is some difference in these types of Negotiable instruments. To explain the difference we have to know the meaning of both terms.
The meaning of both terms explained as following: —. A bill of exchange is an instrument that contains a promise to pay some amount of money to a certain person after a certain period of time. It is generally drawn by the creditor maker or drawer on his debtor acceptor or drawee and the debtor gives the acceptance that he will pay the money to the maker drawer after some certain period or a specific date.
A promissory note is an instrument that contains the written and signed promise by the maker the debtor to pay a certain amount to the creditor on a specific date or on-demand. Basis of Difference. Bill of exchange and the promissory note both are the types of negotiable instruments. In the case of bills of exchange, maker of the bill will treat it as bill receivable and drawee will treat is as bills payable. In the case of Promissory Note, maker of the Mate will treat it as bill payable and the payee will treat it as bills receivable.
Thanks for reading the topic. If you have any question please ask us by commenting. Whoever pays the sum written on cheque becomes drawee. And the amount has to be paid to the payee. No, they have a lot of differences. A bill of exchange has to be validated by the person who is supposed to pay the debt whereas a cheque is the amount of money which the bearer of the cheque can demand at any time. A drawee is needed to make a bill of exchange acceptable.
A demand draft is somewhat similar to a bill of exchange. A demand draft is issued to a drawer or client , in which a bank has to pay a certain amount, which is considered to be drawee and the amount gets paid to the payee.
Demand drafts are payable only to the specified party mentioned on it. However, a cheque is also payable to the bearer of it. A promissory note is a written document which states a promise of paying the debt to another person. This payment might be in installments or in full at a specified date. However, a cheque is not a promise but a onetime payment signed by the drawer.
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