BK Bill of Exchange

[Vaibhavi Karavkar]

report on various treatment of Bill of Exchange 

[Nikhil Nair]

Hi Vaibhavi,

The various treatments of BOE are Discounting, Endorsing, Sent for collection, Dishonor of bill, Renewal of bill, etc.

They are discussed in brief below:

Discounting of a bill: Selling the bill to the bank is called as discounting of a bill. In this case the payee sells the bill to the bank to get the money deposited in his bank account immediately. Before the due date the bank transfers the money to the account of payee. Since the payment is received by the payee before the due date, the bank does not give full money of the bill, but it gives the money after deducting some interest on the same. Such interest deducted is called as discount charges. On the due date the bank collects the amount from the acceptor & retains it. If the acceptor fails to pay the bill then the full amount (& not the net amount) of the bill is withdrawn from the account of payee by the bank.

Endorsement of a bill: As already discussed, a bill of exchange is a negotiable instrument. It ican be used in settlement of various transactions. Therefore, the bill can be transferred in favour of third party. Transferring the bill in favour of third party is called a endorsing the bill. After endorsement, the endorsee becomes payee. On the due date the endorsee collects the amount from acceptor. If the acceptor fails to pay the amount then the endorsee can claim the same form the endorser.

Bill sent to bank for collection: it is a service given by the bank to the payee. On behalf of payee the bank collects the bill on the due date. The amount so collected is deposited in the account of payee. The does not make a major charge for this service. The full money of the bill is received only on due date of the bill. If the bill is dishonoured, the bank does not withdraw anything from the account of the payee.

Renewal of a bill: extending the due date of a bill at the request of drawee is called as renewal of a bill. It always involve cancellation of old bill, charge of interest & drawing of new bill.
In case of renewal of a bill, it is necessary to use the following steps
1) Cancel the old bill.
2) Receive the cash in part settlement.
3) Calculate interest on the balance part for the extended period.
4) Draw up the new bill.
5) Normally interest is added to the amount of new bill, i.e. old bill (-) cash received (+) interest charged (=) New bill.
6) However in some cases the problem may specify that interest must be paid together with cash. In such case new bill amount is exclusive of interest.

Dishonour of a bill: Non payment of a bill on due date is called as dishonour of a bill.

Retirement of a bill: Hounouring the bill before the due date is called as retirement of a bill.

Revert back for more help.

More Classes Team.