What is a bill of exchange? Features of a bill of exchange?

Short-term loans are a popular way of borrowing that many people choose today. When it is time to pay, the debtor will receive a refund order and must be responsible for complying with the terms of the previous agreement. This type of document is called a bill of exchange.

So what is a bill of exchange? What is the meaning? What are the characteristics and classification? Let’s find out with Fastloan.PH through the content of the article.

Table of Contents

What is a bill of exchange?

A bill of exchange is a form of short-term loan, expressed in writing, where the beneficiary can request the issuer to pay him a certain amount of money, and the debtor must refund immediately upon receipt of the bill of exchange from the holder owe.

When the bank accepts and endorses it, the bill of exchange can be discounted or negotiated at a lower price and the interest rate is also shorter than the market.

bill of exchange philippines

Usually, the longest term of a bill of exchange is 6 months and is widely used in trade finance or capital mobility in economic sectors, mainly agro-industrial sectors. There are two forms of the draft, domestic bill of exchange used for the domestic market and foreign exchange draft used for foreign transactions.

See also: What is TTR? The postpaid TTR payment process

What are the characteristics of a bill of exchange?

In addition to knowing what a bill of exchange is, a bill of exchange will have the following characteristics.


Borrowers must pay according to the terms stated in this document. No excuse may be given to garnish or deny a request of a beneficiary or lender. In case the draft is issued in contravention of the law, the payer is not required to fulfill the requirements therein.


In writing a bill of exchange, the writer does not need to specify the reason for making it, but only needs to list the contents related to the refund or the amount to be paid. The relevant legal constraints are also not binding on the causes of the bill of exchange. In short, the borrower’s obligation to pay is abstract.


A bill of exchange can be transferred many times in a certain period because it is an order to make money from the debtor.

What is the meaning of the bill of exchange?

Bill of exchange is a commonly used payment method in import and export and is often associated with international payment methods such as L/C or collection entrustment.

bill of exchange

In addition, drafts are also used as a means of credit circulation when the bill of exchange is discounted at a bank or when it is circulated from person to person. During the validity period, the bill of exchange is like a commodity traded on the money market.

Objects involved in the bill of exchange

  • Drawer: The exporter, the seller, or representative of the exporting company, providing services…
  • Drawer (payer) (drawee): The person who has to pay when the ballot is received and payment is requested.
  • Beneficiary: The person who is legal on this document, therefore, will receive the payment amount stated on the draft.
  • Endorser: A person who transfers the right to enjoy a bill of exchange to another person by hand or endorsement.
  • Acceptor: A person who draws and is responsible for paying the bill of exchange at maturity.
  • Holder or bearer: A person who has the right to receive a bill of exchange when it is paid.

Classification of the bill of exchange

Currently, there are 9 different types of bills of exchange, and below are the characteristics of each type of draft.

With this type of bill of exchange, the drawee upon receipt of it is obligated to immediately pay the amount on the draft to the beneficiary without delay for any reason if such draft is issued by the provisions of the law.

Term bill of exchange

When this draft is issued, the drawee needs to sign the acceptance to pay on it. Payment is made on a later determined date.

Plain bill of exchange

This is a type of bill of exchange issued to claim money without supporting documents. This bill of exchange is used to pay fines, compensation, and associated fees such as transportation and insurance fees.

Documented bill of exchange

This form of a bill of exchange is to be issued to the drawee and accompanied by the cargo documents. The bill of exchange and the goods document must go hand in hand and cannot be separated.

Name bill of exchange

This bill of exchange is marked with the beneficiary’s name and does not include a payment-to-order clause, so it is not transferable to another person.

 Anonymous promissory note

This type of bill of exchange does not specify the type of beneficiary, but only the phrase “pay to the holder of the bill of exchange”. If anyone has it, he or she is entitled to the benefits of the bill of exchange.

 Bill of exchange

This is a bill of exchange payable to the order of the beneficiary. This type of document is transferred by signing the transfer on the back of the slip.

Commercial promissory note

The seller issued this type of draft to collect money from the person responsible for the payment of goods sold or exported and other related services rendered.

Bank bill of exchange

This type of bill of exchange is drawn by the bank and ordered to its correspondent bank or bank branch to pay the beneficiary the amount stated in this document.


The above is the most basic knowledge for you to know what a bill of exchange is in payment. Hopefully, the above knowledge will help you have a more general view of this type of document in payment, especially international payments.

See also: Deflation – definition, causes and effects

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