Bills of exchange are financial documents that require the individual or business that is addressed in the document to pay a specified amount of money on a date that is cited within the text. Considered to be a negotiable instrument, the date for the demand to pay generally ranges from the current date to a date within the next six calendar months. This type of document will also require the authorized signature of the debtor in order to be considered legal and binding.
As an unconditional order to pay a fixed sum of money to a creditor, the bill of exchange can take on many different forms. One of the most common examples is the common bank check. A check specifies who is to receive the funds, with the order to pay the face value of the check to the order of the creditor. The exact amount of the payment is specified. The date specified on the check is often the issue date for the check, but may also be the date that the bank is to honor the payment. This process is referred to as post dating a check, since the creditor will physically receive the check at some time before it will be honored.
It is also possible to establish one in the form of a bank draft. Like the bank check, drafts are normally set up with a fixed sum of payment, and with specific instructions of when to issue the payment to the creditor.
The bill of exchange can be a very simple document, or one that is very detailed. In many countries around the world, the use of one is a common means of conducting business, and is often accompanied by an allonge. In situations where the document is not honored, the holder is free to take legal action against the debtor according to local laws, or to sell it to a collector at a discounted rate of exchange.