What are Bills of Exchange?
Payments are critical to any business. However, as anyone who has chased an invoice is sure to know, ensuring payment isnt always easy. A bill of exchange is designed to keep everyone accountable when it comes to making payments on time. Find out everything you need to know about bills of exchange in Australia, including the Bill of Exchange Act 1909, with our helpful guide. A bill of exchange is essentially a formal, written IOU that states when a certain amount of money needs to be paid. Sometimes known as an international bill of exchange, they are similar to a contract, binding one party to an agreed-upon payment amount. A bill of exchange must feature the following:  It must be a written document  It must name all relevant parties  It must be addressed from one party to another  It must bear the signature of the party giving it  It must outline the time when the money is due  It must outline the amount of money that must be paid  Another notable feature of a bill of exchange is that it features three parties, which are as follows:  The drawer: the party who writes the bill and orders the money be paid  The drawee: the party who is required to pay  The payee: the party who is due to be paid  That means the drawer who demands the money in the first place is not necessarily the one due to be paid. An international bill of exchange allows one party to demand payment to a third party. In Australia, the rules around bills of exchange are governed by the Bill of Exchange Act 1909. In accordance with the Bill of Exchange Act 1909, a bill of exchange is an unconditional order for one party to pay another. While it is not quite the same as a contract, they are similar types of documents, and a bill of exchange can also be used as part of a contract to ensure payment. Furthermore, the holder of the bill can sue for any payments not made. A bill of exchange is similar to a cheque in the sense that similar details must be included, while both documents function as requests for payment from one party to another. However, a cheque is slightly more straightforward in that it is merely a request from a banks customer to have the bank pay someone from a specific account. A bill of exchange requests that the recipient makes payment, regardless of where the funds originated. A cheque clearly states where the money will come from and is far more direct: one person writes the cheque, one person banks it, and the bank fulfils it. In the case of a bill of exchange, the bill writer may have no further involvement in actually paying the amount. However, they should assist the payee where the drawee is late or reluctant, so they retain some accountability. How to utilise an international bill of exchange  A bill of exchange can be used in situations wherein Company A requests payment from Company B, and Company B assigns the payment to Company C to streamline the process. When it comes to international bills of exchange, its the same process, but on a global scale. For example, imagine that Company A sells books purchased from Company B, which in turn, places orders with Company C. Company B places an order with Company C and produces a bill of exchange that requires Company A to pay Company C upon receipt of the order. Company Bs debt to Company C is paid with money owed by Company A. Although this may seem somewhat inconvenient, the main benefit of bills of exchange is the fact that they do not have to be paid immediately. In more recent times, bills of exchange have become less commonly used, with other delayed payment methods, like credit cards, becoming far more popular. We can help  GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.