BILL OF EXCHANGE (OR RECEIPT)

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The bill of exchange, also known as a receipt, is a financial instrument that establishes an obligation to pay on a specified date and constitutes an unconditional order by the drawee for the debtor to pay the drawee or a third party a specified amount.

This instrument has its origins in the Middle Ages and has evolved to the present day, where there is a trend towards dematerialisation of documents. Dematerialisation consists of replacing the presentation of the physical document with the presentation of the data contained in that document, incorporating them in an electronic file.

However, in most countries it is not possible to fully replace the written instrument with an electronic document, so in many cases the presentation of the physical document is required in order to manage the acceptance or to lodge the protest.

Despite these particularities, dematerialised bill of exchange presentation systems offer advantages such as speed, lower costs and better control of collections and defaults. Moreover, in some cases it is possible to obtain an additional guarantee from the drawee's financial institution by means of a surety.

It is important to bear in mind that in some legislations, such as the Spanish one, documents that fulfil a draft function, such as the bill of exchange, are subject to special taxes (stamp duty). It is also essential not to forget the instructions regarding the protest to ensure compliance with the payment obligation established in the bill of exchange.

How is a bill of exchange completed?

The following elements are required to complete a bill of exchange:

1. Date: The date on which the bill of exchange is issued must be written.
2. Place of issue: The place where the bill of exchange is issued must be indicated.
3. Librarian: This is the person issuing the bill of exchange. You must include your name and full address.
4. Liberated: This is the person to whom the bill of exchange is addressed. It must also include his or her name and full address.
5. Beneficiary: This is the person who will receive the payment. You must include your name and full address.
6. Amount: The total amount of the debt or business transaction should be written.
7. Maturity: This is the date on which the bill of exchange is due for payment.
8. Signature: The bill of exchange must be signed by the drawer.

In addition to these elements, it is advisable to include additional information such as the reason for the debt or the commercial transaction, as well as any other conditions that have been agreed between the parties.

It is important that the bill of exchange is completed clearly and accurately to avoid confusion or misunderstandings at the time of payment. It is also important to ensure that the relevant legal and fiscal requirements are met.

PRACTICAL EXAMPLE OF HOW A BILL OF EXCHANGE CAN BE COMPLETED:

Suppose John sells Peter a batch of goods worth $$10,000 and they have agreed to use a bill of exchange as the means of payment.

THE BILL OF EXCHANGE WOULD BE COMPLETED AS FOLLOWS:

1. Include the denomination "Bill of Exchange" in the text of the document.
2. Identify the parties involved: At the top of the bill of exchange, the details of the drawer (John) and the drawee (Peter) should be included, including their names, surnames, addresses and tax identification numbers.
3. Include the date of issue: The date on which the bill of exchange is issued should be indicated at the top of the bill of exchange.
4. Include the amount of the bill of exchange: The amount of the bill of exchange, in this case USD $10,000, should be included in the middle of the bill of exchange.
5. Include the due date: At the bottom of the bill of exchange, the date on which payment is to be made, previously agreed between the parties, should be indicated. For example, if it is agreed that payment is to be made within 60 days, this date should be included in the bill of exchange.
6. Include the place of payment: The place where payment is to be made must be indicated at the bottom of the bill of exchange.
7. Include the drawer's signature: Finally, at the bottom of the bill of exchange, the drawer must sign the document to make it effective.

Once the bill of exchange has been completed and signed, it must be handed to the drawee for acceptance, i.e. to commit the drawee to make payment on the agreed date. Once the bill of exchange has been accepted, the drawee can make payment on the due date or, if this is impossible, negotiate with the drawer to modify the terms of payment.

Advantages of the bill of exchange:

• Flexibility: The bill of exchange allows the debtor (the payer) to choose the time and form of payment, which facilitates cash management and payment planning.
• Guarantee: The bill of exchange is an instrument that offers a very high guarantee of payment, since the acceptor (the one who undertakes to pay) is obliged to fulfil his commitment within the period stipulated in the bill.
• Acceptance: The fact that the acceptor has accepted the bill implies that he acknowledges the existence of the debt and undertakes to pay it, which increases the likelihood of collection compared to other forms of payment.
• Circulation: The bill of exchange is a security that can be transferred to third parties through endorsement, which allows the circulation of the commercial credit without the need for further collection procedures.
• Standardisation: The bill of exchange is a standardised financial instrument that facilitates the management and control of payments and receipts.

Disadvantages of the bill of exchange:

• Cost: The issuance of a bill of exchange may have a cost associated with it, both for the stamped paper and for the fees of the financial intermediaries.
• Risk of non-payment: Although the bill of exchange offers a high guarantee of payment, there is always a risk of non-payment by the acceptor.
• Processing: The handling and processing of a bill of exchange can be more complex and time-consuming than other means of payment.
• Formality requirements: The bill of exchange is subject to legal formalities, which can be cumbersome and complex for some businesses.
• Lack of acceptance: If the acceptor does not accept the bill of exchange, the collection process can be more complicated and lengthy.

It is important to consider these advantages and disadvantages before deciding to use the bill of exchange in a commercial transaction and to assess whether it suits the needs and particularities of each individual case.