What is Bills of Exchange?
A bill of exchange is a written, unconditional order by one party (the drawer) requiring another party (the drawee) to pay a fixed sum of money to a third party (the payee) either on demand or at a specified future date. It is a negotiable instrument widely used in trade finance.
How It Works
- The drawer issues the bill and presents it to the drawee for acceptance.
- On acceptance, the drawee becomes liable to pay on the maturity date.
- The drawer can hold the bill, endorse it to a supplier, or discount it with a bank for immediate cash, net of bank charges.
- On maturity, the drawee pays the holder of the bill or it is dishonoured and protested.
Saudi Context
Bills of exchange remain common in Saudi trade finance and import-export transactions, often supplemented or replaced by letters of credit issued by SAMA-supervised banks. Saudi commercial law recognises bills of exchange as negotiable instruments enforceable in commercial courts.
Example
A Saudi importer accepts a 90-day bill of exchange worth SAR 250,000 from a supplier. The supplier discounts the bill with a Saudi bank for SAR 247,000 cash; the bank collects SAR 250,000 from the importer at maturity.